By Bill Fleckenstein
Alan Greenspan gave a speech recently titled "Economic Flexibility." It should have been called "Damn, I'm Good," because the world's biggest serial bubble blower -- and most incompetent, irresponsible Fed chairman of all time -- tried to rewrite history. My column today will endeavor to set the record straight.
At least he was nice enough to organize his speech so that the majority of objectionable material fell into seven or eight consecutive paragraphs, as he tried to set up Ben Bernanke (his likely successor) to be the fall guy for all of the problems that Greenspan and the rest of the yes-men at the Fed have precipitated.
He's got the dates but not the cause
I'll turn first to his brief 1990s synopsis, in which he claimed: "Yet the significant monetary tightening of 1994 did not prevent what must by then have been the beginnings of the bubble of the 1990s. And equity prices continued to rise during the tightening of policy between mid-1999 and May 2000.
His observation of when the mania really took hold and mine are exactly the same. It did start in late 1994. Of course, as with everything, he recognizes the end result but has absolutely no clue as to its cause. The reason for the continued rise in equity prices was that the Fed panicked in mid-1995 and reversed its tightening course after Orange County (and other leveraged entities) blew up. Next, the Fed bailed out the Asian crisis in 1997, Long-Term Capital Management in 1998 and fears of Y2K problems in late 1999.
Continuing on, he notes: "Indeed, the equity market's ability to withstand periods of tightening arguably reinforced the bull market's momentum." No, it was his endless bailouts that caused folks to believe in the notion of a "Greenspan put." Purely and simply, it was his practice of bailouts and market-cheerleading (which reached fevered pitch at the peak) that turned the boom to bubble.
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