David Kirkpatrick

August 7, 2010

Bush tax cuts find foe in Greenspan

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 10:26 am

Alan Greenspan’s post-Fed chair economic line has been quite different from how he wielded power for almost twenty years. His latest seeming apostasy is to call for repealing the Bush 43 tax cuts. I’ll have to admit I agree with the sphinx here. I’m certainly fiscally conservative, but I’m not fiscally stupid, and I’m certainly not one of those fiscal hardliners (hardheaders?) who would prefer to see the United States go completely bankrupt than to implement a serious monetary policy that matches the facts on the ground.

From the link:

It was not enough, it seems, for Alan Greenspan, the former Federal Reserve chairman and a self-described lifelong Republican libertarian, to call for stringent government regulation of giant banks, as he did a few months ago.

Now Mr. Greenspan is wading into the most fierce economic policy debate in Washington — what to do with the tax cuts adopted, in large part because of his implicit backing, under President George W. Bush — with a position not only contrary to Republican orthodoxy, but decidedly to the left of President Obama.

Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

November 20, 2008

Hats in hand with dirty knees …

our corporate backbone pleads with the gov’mint for a thin dime.

Sickening.

From the link:

At the very core of the current financial crisis lies the problem of moral hazard.

Moral hazard is the alignment of incentives that encourages the pursuit of short-term gains with scant regard to (or even responsibility for) potential long-term costs.

The U.S. Federal Reserve Bank and the federal government helped create the moral hazard problem, but they are not focused on correcting it. In fact, some recent actions are making the problem more acute.

Former Fed Chairman William McChesney Martin Jr., once said that the role of the Fed was to “take away the punch bowl just as the party got going.” But under the leadership of Alan Greenspan, the Fed not only left the punch bowl on the table, it also spiked the punch.

When equity markets wobbled, the Fed came to the rescue. Yet when he commented on the “irrational exuberance” of the equity markets several years ago, Greenspan admitted no role in creating that exuberance.

More recently Greenspan failed to acknowledge the moral hazard problem in a different context. In his Oct. 23 testimony before Congress, he expressed “shocked disbelief” that self-regulation failed — that financial institutions did not do a better job preventing themselves from getting into trouble.

Greenspan’s shock is itself surprising. He was right to believe that markets could be self-regulating, and he was right to believe that markets should work. What he failed to see, though, was that self-regulation couldn’t work because of the moral hazard that had crept into the way Wall Street operated.

Many of the problems with Wall Street lie with the corporate structure itself. In the idealized world, management should be acting for the benefit of the shareholders, and the shareholders should act through the board of directors to set compensation and power of management.

October 23, 2008

Greenspan admits to less than perfection

I get the feeling he realizes he has to offer up some mea culpa. This meltdown will most likely end up his legacy, but the mitigation master is trying a gambit to minimize the damage.

From the link:

Facing a firing line of questions from Washington lawmakers, Alan Greenspan, the former Federal Reserve chairman once considered the infallible maestro of the financial system, admitted on Thursday that he “made a mistake” in trusting that free markets could regulate themselves without government oversight.

A fervent proponent of deregulation during his 18-year tenure at the Fed’s helm, Mr. Greenspan has faced mounting criticism this year for having refused to consider cracking down on credit derivatives, an unchecked market whose excesses partly led to the current financial crisis.

Although he defended the use of derivatives in general, Mr. Greenspan, who left office in 2006, told members of the House Committee of Government Oversight and Reform that he was “partially” wrong in not having tried to regulate the market for credit-default swaps.

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