The Magical Piggy Bank

The Wizard who utterly failed to anticipate the results of keeping interest rates too low speaks again. He seems to be worried about moral hazard, deficit spending, and creeping socialism, but really, what is Ben Bernanke supposed to DO, except handle the bad set of cards he was dealt as well as he can? Had he done nothing we would have already seen a stock market crash:

[Alan] Greenspan envisions the formation of a group akin to the Resolution Trust Corp. to step in, take a troubled company into conservatorship, wipe out the equity, impose some charge or "haircut" on its debts before guaranteeing them and then selling its assets. The RTC was created in 1989 to deal with the aftermath of the savings and loan crisis. It disposed of the assets of failed savings and loans and then went out of business.

...Critics in Congress, in academia and elsewhere worry that the Fed's unprecedented actions - including financial backing in March for JPMorgan Chase & Co. (JPM)'s takeover of Bear Stearns Cos. - are putting taxpayers on the hook for billions of dollars of potential losses. They also say it encourages "moral hazard," that is, allowing financial companies to gamble more recklessly in the future.

Fed Chairman Ben Bernanke, who took the helm after Greenspan, has repeatedly defended the Fed's actions, saying they were necessary to avert a meltdown of the entire financial system, which would have devastated the U.S. economy.

...Greenspan, 82, who ran the Fed for 18 1/2 years and was the second-longest serving chief, says he is concerned that Capitol Hill will look to the Fed's actions "as a wondrous new font of seemingly costless federal funding - a magical piggy bank."

Oh come on, Alan, who DOESN'T like the idea of a magical piggy bank?

Greenspan calls the current crisis "one of those rare, once in a century or half-century events."

No, these events seem to be happening once a decade, or less. Remember the savings and loan crisis, or the dotcom crisis? They weren't that long ago. Indeed, the frequency of these events seem to be increasing!

Looking back, Greenspan says governments and central banks probably could not have altered the course of the once high-flying housing market and broken through investors' fevered euphoria.

No, YOU couldn't, Mr. Greenspan. An interest rate increase anyone?

He believes that the government should have gone after fraudulent mortgage practices, however. "Bank regulators, who are expert in accounting, banking law and risk management, are not equipped for this job," he says. "It requires law-enforcement professionals."

You could have lobbied for the enforcement of laws already on the books, Mr. Greenspan, had you cared.

Greenspan has taken much criticism for failing to crack down on dubious lending practices that eventually came to roost with the subprime meltdown and for failing to act as a forceful banking regulator. He also has been blamed for keeping interest rates too low for too long, feeding the housing bubble.

Epitaph for a Wizard.