Greenspan Interview: Fed Spin Doctor Hides Ugly Bailout Truth (Video)

Author: Rob K. Blake | Date: September 13, 2008 | Filed In: Mortgage News

Alan Greenspan was interviewed by Bloomberg’s Al Hunt and opined on the Bear Stearns bailout, Lehman Brothers recent trouble, and his view of the Fed’s role as market stabilizer. I feel this is the most self-serving and disingenuous words I have heard yet from the master spin doctor and former Federal Reserve Chairman.

Bear Stearns “Bailout” More Like a Mugging

The interview begins with Greenspan being questioned about the Fed’s role in the Bear Stearns bailout. He answered saying the Fed had “very little choice” due to Bear Stearns being “so interconnected to the system there was a high risk if something were not done”.

This is just spin folks. If it were true, then how did the government allow one investment firm to get “so interconnected” it could hold the government hostage? Who allowed that to happen? Why?

Or is a more simple answer the correct one. A simple answer like, the Fed loves to step in on weak investment firms and structure a buyout to one of their commercial banks at a deep discount?

Least we forget it was JPMorgan Chase who offered to purchase Bear Stearns for a song at an initial offering of $2 a share! (They eventually paid $10 dollars a share…not much better if you ask the Bear Stearns employees and shareholders.)

Lehman Brothers - Round Two

When asked about the recent Lehman Brothers problem and whether the Fed should step in, Greenspan again said if it was possible to find a non-government solution, they should. When pressed on it the odds it will work out that way he dodged the question by saying, “I don’t know”.

So now is Lehman Brothers “so interconnected” the Feds must bail them out too? Once again, if this is true, how is it that the government allowed not one, but two investment firms to get so important to the “system” it’s demise would take us all down?

As I write this, the front runner to “bail out” Lehman Brothers is Bank of America….go figure.

“Bailout” As Business Model

It’s all BS. These investment banks are coveted acquisitions by the commercial banks. Acquisitions they’d never be able to pull off if not for a “crisis”. So a crisis must be manufactured; the importance of these firms must be overstated.

These financial firms are not important gears in the wheel of the US financial strength. Individually or together, these firms are like a spit in the ocean to the US economy. It’s like saying we have to bailout Lockheed Martin because if we don’t our entire defense system will fail.

I find it so disingenuous for Greenspan to spout this obvious propaganda cover-story to mask the fact that the Fed member commercial banks are the ones profiting from these Fed-assisted takeovers.

Buying your competition for pennies on the dollar is a fantastic business model…and Greenspan knows it.

Mission Impossible My Eye!

However, the most unbelievable Greenspan spin in the interview came when Hunt asked whether the Fed should regulate investment banks as they do commercial banks. He again dodged the question by saying the bigger question was whether the Fed should play the role of “overseer of financial stability”. Not the questions asked, but he used this opportunity to reinforce the idea that Fed should not be seen as overseer because “you cannot forecast a crisis“…”no one can forecast the next crisis” ….and asking the Fed to do this is a “mission impossible”.

Hogwash! Everyone from Nouriel Roubini to Ron Paul (myself included) saw this mortgage crisis coming years in advance. The unmitigated gall it takes to say this was unforeseeable is only topped by the gullibility of the multitudes in the country and Congress who’ll believe him.

Greenspan goes on to say,

“The presumption that the Federal Reserve can stop these types of crisis occurring which are fundamentally a result of human nature swinging back and forth… will always exist …there is no way to prevent them….and to say that you can I think is a misjudgement of a very substantial proportion.”

This is just his way of saying, “Get used the idea of financial instability…it’s good for our business.”

The Ugly Truth

The ugly, hidden truth about Fed bank bailouts, in my opinion, is the Fed saw the investment banks were creating risky mortgage products and instead of reigning them in, they let them hoist themselves by their own petard. This would give the Fed the “in” they needed to help member banks buy them out at pennies on the dollar all the while looking like some kind of financial “savior”.

Of course, you have to be pretty ruthless to let this happen knowing the country would experience the worst mortgage and real estate markets in decades, but, hey…you gotta break some eggs to make an omelet.

Right, Alan?

Author: Rob K. Blake