Greenspan Says, "Sorry!"

Apologizes for Wrecking World Economy
Admits "harebrained" scheme of credit-dependent economic growth "a failure."

Special Bulletin - April 1, 2008
Today, speaking to a group of unemployed automobile parts factory workers in Ohio and homeless ex-venture capitalists in California's once economically vibrant Silicon Valley via a free Internet seminar, ex-Fed Chairman Alan Greenspan apologized for creating a “madcap” economic system in the mid 1990s, dependent on leverage and asset speculation, that collapsed in 2007.  The implosion occurred when Iran, Venezuela and Russia together cut off oil supplies to the U.S. after National Security Advisor Condoleeza Rice referred to Russian President Vladimir Putin, Venezuelan President of Hugo Chavez and Iranian President Mahmoud Ahmadinejad as “The Three Oil Stooges,” in a speech to students at Georgetown University in Washington, DC.  She likened the Russian President to Three Stooges character Mo Howard, stating “He was the leader of the group, just like Putin.”  Since then, Russia, Iran and Venezuelan have been selling the balance of their oil to China.
The oil cut-off spiked inflation and interest rates, collapsed the dollar and created the worst economic calamity in history.  Global trade fell 53% in two years, inflation and interest rates soared to double digits and unemployment increased to over 20% in most Western countries. 

National Security Advisor Rice later explained, “I was just kidding.”

In unusually comprehendible comments during his seminar, Greenspan said, “We thought we had it right.  Similar harebrained credit based monetary schemes had been tried before over the past thousand years or so.  They didn’t work out, either.  Looking back, our mistake was that we didn’t see the obvious parallels to the past.  We thought we finally got it right, we’d ironed out the bugs.  But things got out of control."

A seminar participant asked Greenspan during a brief Q&A session what led him to conclude that something was wrong.   Greenspan replied, "Mortgage companies were financing speculators to flip condos in Florida four times before they were built.  Private equity firms were financing speculators to flip $1B companies over and over.  The money poured into big houses in Connecticut and upstate New York, hedge funds in the Cayman Islands, even yard sale junk on the Antiques Roadshow.  At the end of one show, a guy who brought a crap wooden horse he inherited from his grandparents is surprised when the appraiser tells him it's worth $50,000.  You can see the guy is thinking, “Who’d pay $50,000 for a crap wooden horse?”  But I knew.  A hedge fund manager, that’s who."

"That and the fact that the Fed's email spam filtering system became completely clogged with 'Refinance Your Home Now Before Rates Go Up!' and 'Consolidate Debt Now!' email," Greenspan added. 

Greenspan stated that he does not blame the new Fed Chairman Ben Bernanke for current conditions. "When Ben took over, he was trying to put a stop to it, gradually.  He wanted to create a soft landing.  The Mo Howard thing was a random exogenous event,” Greenspan said.

Greenspan explained that Bernanke had to continue raising interest rates to keep inflation in check.  "Inflation increased to near double-digit rates in 2007 as commodity prices continued to surge.  Commodities inflation was balanced out within the U.S. economy by cheap imports from slave laborers  in totalitarian China.  To keep foreign investment flowing, especially from China, and cheap goods coming in, Ben had to keep raising rates.  However, high interest rates slowed U.S. consumer spending and pushed the U.S. economy into recession.  Economic growth that lowered the risk premium on U.S. debt and consumption of exports were the only reasons why China was buying U.S. financial assets, so they stopped and now export more goods to the rest of Asia, Europe, the Middle East, South America... you know... everywhere else."

“The system was absurd.  It’s not Ben’s fault,” Greenspan added.  “It’s my fault.  The system was stupid, a failure.”

Fed Chairman Ben Bernanke, who took over for Greenspan in 2006, commented, “I got this job because of my strong academic credentials as a scholar of The Great Depression.  I got a lot of press on this.  ‘Bernanke is a student of The Great Depression.’  We made sure this got reported over and over.  New York Times, Wall Street Journal, and so on.  Get it?  Everyone knew I had a big challenge on my hands.  Lately I’ve been studying up on the collapse of the Weimar Republic.”

The free nature of the online seminar was in sharp contrast from Greenspan’s speaking engagements that immediately followed his departure from the Fed in 2006.   He then earned large fees on the lecture circuit, for example reportedly earning $120,000 for a two-hour televised broadcast to clients of CLSA, the Asian investment-banking unit of France's Credit Agricole, and more than $100,000 for a speech to select customers of ABN-Amro in 2006.* 

Discuss this Commentary
Greenspan Sorry

Greenspan: "Sorry!"
* This part is actually true.  The rest is, of course, an April Fool's joke published April 1, 2006 not April 1, 2008 as shown.
Join our FREE Email Mailing List