In this post Gonzalo Lira fantasizes about whether Alan Greenspan, who was Chairman of the Federal Reserve Board from 1987 to 2006, should be tried for Crimes Against the Economy?

Gonzalo’s answer?: “Yes—absolutely. No question.

Below the four main charges against Greenspan:

One—Irresponsible Market Liquidity, Which Created Rampant Moral Hazard:
The Accused was instrumental in creating the pernicious policy mentality of “providing markets with necessary liquidity”—essentially, throwing money at every problem.

Two—The Fed’s Do-Not-Touch-the Financial-Services-Sector Policy:
The Accused was instrumental in creating a Do-Not-Touch attitude towards the banks, both investment and commercial—which of course led the financial sector to pursue incredibly stupid products and strategies: All in the name of “maintaining financial markets’ ability to innovate”. These “innovations” were directly to blame for the Global Financial Crisis, as they created unsustainable liabilities which sooner or later would lead to system-wide collapse.

Three—Subsidized Money, Which Radically Distorted The Economy:
This is probably the biggest crime Alan Greenspan committed as Federal Reserve Chairman: The so-called “Greenspan Put”.
For the twenty years of his tenure, the Accused—supposedly an avowed free marketeer—subsidized the cost of money. Rather than let the Fed funds rate more or less mirror what banks were lending among themselves, and tighten interest rates when the economy overheated (as his predecessors had done), Greenspan instead goosed the markets: His “targeted” Fed funds rate was forever undercutting what the financial markets were dictating, as to the true price of money.

Fourth and finally—Turning Economics Into a Religion with the “We Are Right Because Our God—Math—Is On Our Side” Fallacy, and Marginalizing the Heterodox.
The Accused—Alan Greenspan—reneged on his sworn mandate to maintain low inflation and full employment, and instead pursued a policy of maintaining—and increasing—aggregate asset values, whatsoever the cost. In other words, he actively pursued bubble-creation and inflated asset values, to the benefit of the financial services industry, and to the detriment of the U.S. and world economies as a whole.

The Conclusion:
Alan Greenspan furthermore created rampant moral hazard, and declined to carry out his sworn duty to regulate and monitor financial markets, and to curb usurious or unsafe financial products and services. Finally, he created the conditions that—quite possibly—will lead to a Treasury bond collapse and a hyperinflationary catastrophe.

The Prosecution rests.

Read the whole post here:
http://gonzalolira.blogspot.com

Read Also:
25 People to Blame for the Financial Crisis
The good intentions, bad managers and greed behind the meltdown
A list of 25 people to blame for the financial crisis by Time Magazine, that placed Greenspan at # 3.

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Tags: Financial, Greenspan, liquidity, Subsidized