Sometimes, It's Hard to Be Alan Greenspan

Alan Greenspan

Up until about six months ago, the reputation of Alan Greenspan was all but assured.

Writing in The Wall Street Journal in January 2006, the late Milton Friedman, Nobel Prize-winning economist and father of modern-day monetary economics, said this about him: "His performance has indeed been remarkable. There is no other period of comparable length in which the Federal Reserve System has performed so well. It is more than a difference of degree; it approaches a difference of kind."

Friedman pointed out that there were fewer recessions and greater price stability during Greenspan's tenure than ever before in the history of the Fed. Greenspan was king; his reputation secure.

Now we're told by some very smart people that Greenspan was actually a bust, a man who cured one bubble -- the tech bubble -- by creating another -- the housing bubble. He kept interest rates too low for too long, and his laissez-faire attitude to the mortgage industry was driven by an ideologue's belief in unregulated markets.

Descending further into the demented netherworld of the Internet, we find that Greenspan was not just an economist who made some mistakes, but a diabolical and corrupt banker, purposefully manipulating the currency for the benefit of Wall Street, large corporations and -- in the inevitable, conspiratorial tradition of extremist politics -- the Jews, naturally.

Greenspan has mounted a defense, arguing that he could not prevent the financial bubbles that are an unfortunate product of human nature.

Furthermore, he continues, the huge supply of dollars from China and other countries flowing into U.S. Treasury Bonds broke the link between short-term and long-term rates, and made domestic monetary policy less effective. The result was a worldwide housing bubble, not just a domestic one.

A Bust on the Bubble

The skeptics' response: Although it's true you can't control human nature, Greenspan made the bubble worse by keeping those rates too low for too long.

This debate, along with all the other crazy stuff that's happening in today's markets, leaves the rest of us befuddled.

Unschooled in the arcane world of monetary economics, bombarded daily with new acronyms, like CDOs and SIVs, chagrined at the ratings agencies' failure to truly understand the mortgage-backed derivative securities on which they bestowed triple-A ratings, and puzzled as to how one man's reputation could go from superstar to failure in the course of six months -- all of this controversy makes us scratch our heads and wonder: In today's complex world, does anyone, anywhere, who says anything about anything, really have any idea what they're talking about?

The only way to truly solve the Greenspan debate would be to go back in time and change his decisions to the critics' liking, while keeping everything else the same.

It would be nice if, like Superman, we could go back in time by reversing the directional orbit of the earth and change one or two things, and then see how history would have turned out if this or that was different. But, for better or worse -- and probably mostly for the better -- we can't. The cruel and unyielding march of time prevents such controlled experiments, the "what-ifs" multiply, and we're left with competing words and ideas that will take years to be resolved, if ever.

Reputation is elusive. Gen. Douglas MacArthur, after being fired by President Harry S. Truman, was given a ticker-tape parade while Truman's approval rating sunk to 22 percent. A generation later, their reputations reversed. Abe Lincoln was called a baboon by his own general, George B. McClellan, who was treated as a hero in the early part of the Civil War. Today, Lincoln is a giant, and McClellan is the coward who had to be fired.

The jury is still out on Greenspan. An impartial verdict will probably never be reached during our lifetime. The passions are too great, the opinions too hardened, the data too vast and unwieldy, and the conclusions too forgone for anyone living today to give a truly fair assessment of the tenure of Alan G.

Fred D. Snitzer is chief operating officer in the investment-management firm of Prudent Management Associates, specializing in high-net-worth and tax-deferred asset management. Go to: www.prudentmanagement.com.