Blog on the Run: Reloaded

Monday, June 21, 2010 11:04 am

Layin’ the smackdown on Alan Greenspan

Why do so many people think Alan Greenspan is a genius? Barry Ritholtz just doesn’t get it, and after reading him for several months, neither do I:

Former Fed Chair Alan Greenspan discussed the Federal deficit in a WSJ OpEd yesterday. In it, he argued that the budding “urgency to rein in budget deficits” is occurring “none too soon.”

Like most of the former Fed Chair’s analyses, forecasts, and economic beliefs, this one is pure, unmitigated nonsense. A brief look at the Greenspan legacy, along with his track record of forecasts, leads to the obvious conclusion: Greenspan is an economist to blithely ignore, as his commentary contains almost nothing of value other than its status as a contrary indicator.

Before we get into the details of his deficit commentary, I must highlight this sentence: “The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy.”

No, Alan, the financial crisis was not triggered by Lehman’s collapse. You are getting the causation exactly backwards: The crisis is what triggered LEH’s collapse. Further, the fall of Lehman was hardly “unexpected.” Whether you want to look at stock price before the collapse, spreads on its debt, David Einhorn’s forensic accounting (he was short LEH) or our own quantitative analysis (we were short LEH), there were plenty of warnings about Lehman’s collapse. It was only unexpected by those whose ideological beliefs blinded them to reality. (Remind you of anyone?)

I am not particularly well-versed in economics — I’ve taken one course in my life — and yet I knew the economy in general and Lehman Bros. in particular were overextended even before Lehman failed. So how did this escape the notice of the Master of the Universe?

And this is not an isolated instance. Ritholtz actually makes a decent case that Greenspan is “the most incompetent economist of his generation” … which is saying something.

Thing is, there are still plenty of politicians in positions of power out there who will believe every word Alan Greenspan says because he tells them what they want to hear.

Wednesday, April 28, 2010 5:05 am

But this guy does not admit it

Shorter deposed Lehman CEO Stan O’Neal on the CDOs that sank his company: No one could have known.*

*Except the people I fired.

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