Must-Read: Sebastian Mallaby: The Doubts of Alan Greenspan

Must-Read: WTF?! I see Sebastian Mallaby, apparently thinking he is defending Alan Greenspan’s reputation.

He is not: he is making Greenspan appear a really bad actor indeed.

He is making Greenspan appear to be somebody who knew the dangers of the housing bubble in the mid-2000s, and let the risk of a little political heat–“devastating TV ads…”–dissuade him from doing his job.

Needless to say, I think Mallaby is way wrong here:

Sebastian Mallaby: The Doubts of Alan Greenspan:

In Jan. 2004, with house prices starting to look frothy, Mr. Greenspan repeated his warning, predicting a repeat of the tech bust…

…“It sounds as though we’re back in the late ’90s,” he worried to his colleagues. “The potential snap-back effects are large.”… Long before the 2008 crisis, he had understood the lessons that were celebrated as new insights in the wake of the crash. Of course, this begs a question: If Mr. Greenspan understood the danger of bubbles, why did he nonetheless permit them—even rationalizing his policy with a public insistence that the best way to deal with bubbles was to clean up after they burst?…

The political environment…. Greenspan was a hardened Washington veteran…. He calculated that acting forcefully against bubbles would lead only to frustration and hostile political scrutiny. And his caution was vindicated. When he did try to rein in risk-taking—calling, for example, for restraints on the government-sponsored housing lenders—he felt the heat. The housing-industrial complex denounced him for failing to understand mortgage finance and ran devastating TV ads to deter members of Congress from supporting Mr. Greenspan’s calls for regulatory intervention.

It is too easy, and too comforting, to blame Alan Greenspan’s supposed intellectual errors for the 2008 crisis…. The origins of the crisis lay not in the maestro’s failure of understanding–which would be easy to correct. Rather, it lay in the failure of our politics. Who in this electoral season would bet that we are safer now?