Everyone’s favorite ancient Fed chair found himself having a neighborly chat with some government commission today, about who wasn’t to blame for the financial meltdown. Surprisingly, Greenspan is blaming literally every single person on earth except the Fed. Even Communists, in the first paragraph of his prepared statement.

It was the global proliferation of securitized U.S. subprime mortgages that was the immediate trigger of the current crisis. But its roots reach back, as best I can judge, to 1989, when the fall of the Berlin Wall exposed the economic ruin produced by the Soviet system. Central planning, in one form or another, was discredited and widely displaced by competitive markets.

We’re not disagreeing that there is plenty of blame to spread around – he’s been particularly hard on Fannie and Freddie (Greenspan is notoriously hard on the fannie; just ask Ayn Rand). But East Germany has enough problems without you hanging our housing fail on them too.

He even goes on to say, hey, I tried to warn you guys:

In 2002, I expressed concerns to the FOMC, noting that “…our extraordinary housing boom…financed by very large increases in mortgage debt – cannot continue indefinitely.” It did continue for longer than I would have forecast at the time, and it did so despite the extensive two-year-long tightening of monetary policy that began in mid-2004.

What he doesn’t go on to say is his remarks from 2004 where he said a whole lot of “Housing bubble? It can’t happen!”

About three-fourths of all outstanding first-lien mortgages were originated with a loan-to-value ratio of 80 percent or less, and in aggregate, the current loan-to-value ratio is estimated to be around 45 percent. Even though some down payments are borrowed, it would take a large, and historically most unusual, fall in home prices to wipe out a significant part of home equity.

[...]

More likely participants in speculative trading are investors in single residence rental and second home properties. But even though in recent years their share of purchases of single family homes has been growing, in 2003 their mortgage originations were still less than 11 percent of total home mortgage originations. Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity.

So nobody’s perfect, it’s not like you could reasonably expect the nation’s top economist to have a hint that the nation’s economy would take its biggest nosedive in seventy years two years after the bubble he said couldn’t happen, burst. And Greenspan knows he’s not infallible:

Angelides: Would you put this under the category of ‘Oops,’ we should have done it?

Greenspan: When you’ve been in government for 20 years, as I have been, the issue of retrospective and figuring out what you should have done differently is a really futile activity… My experience has been, in the business I was in I was right 70 percent of the time, but I was wrong 30 percent of the time and there are an awful lot of mistakes in 21 years.

Hey, only one out of every three things he says is wrong, that’s not bad, right? Hell of a 30 percent, though.

Okay, it’s the closest he’s come to admitting he did it:

The Crisis, by Alan Greenspan. It sounds like an airport novel. But the 66-page paper is the closest we’ve ever gotten to a mea culpa from the former Fed chief, who chaired the US central bank in the midst of a growing housing bubble.

And he talks about how he regrets a lot of things. The rise of megabanks, trivial capital requirements, lack of supervision, knowing about subprime mortgage slime and ignoring it. But he doesn’t go so far as to say he regrets the Fed’s low interest rates, without which very little of the risk-taking he so much regrets not intervening in would have ever happened. It’s hard out there for a vilified ex-Fed chair, we guess. But, at this point, what does he have to lose by admitting it?

Ha ha, scare headline. So now Alan Greenspan is advocating that banks too big to fail should be broken up into lots of tiny little banks, like Constructicons. Yes, that same Alan Greenspan who partied with Ayn Rand and was unable to even pronounce the word “regulation” until his fifty-third birthday.

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil — so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

For perspective, Alan Greenspan is so old that he only missed the 1911 breakup of Standard Oil by 15 years. For even more perspective, he is so old that he forgot Standard Oil was broken up for monopolistic practices, not for threatening stability of the global economy in the event of its collapse. But let’s not hold that against him, he’s got a larger point to make.

At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.

“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.

Hank Paulson, you just got…served? Kind of? Is this what it looks like when an old man brings the fight to your yard? Anyway, this sort of makes it clearer why the normally laissez-faire Greenspan is suddenly in favor of such drastic government intervention: because of drastic government intervention. Wait, what?

According to Greenspan, the government stepping in with what amounted to a bridge loan to Bear Stearns (bridge loan, get it? Jimmy Cayne gets it) and an epic loan(s) to prevent AIG from killing every man, woman, and child in the industrialized world, was a bad intervention. On the other hand, the government forcibly breaking large (and profitable) companies down into smaller companies, despite having no legal standing to do so, in the name of preventing a possible catastrophe, is perfectly acceptable. In fact, it’s good and necessary.

Can you imagine the epic lulz when the call comes into Ken Lewis telling him that, after all the to-do about being forced at actual gunpoint to buy Merrill Lynch last year because the firm couldn’t stand on its own, now they’ve gotta spin it off because Bank of America is too big? Even though the reason it’s too big is Hank Paulson made it too big? And when the ensuing fallout cost Kennay his job? Ken Lewis might murder everyone in Charlotte that day.

We would like to be the first to remind Alan of what happened when AT&T was forcibly broken up into three million tiny companies: through a series of mergers, AT&T re-bought most of the Baby Bells and is once again a raging monopoly in every area it services only twenty-five years later. Just putting it out there.

Let ‘em fail, break ‘em up, tax ‘em so they don’t want to grow, leave ‘em be, whatever. We here at LOLFed will make fun of whatever is done to resolve the whole too big to fail unpleasantness with equal parts exasperation and mild annoyance. Just be consistent about it. That is all we ask of our leaders and figureheads and doddering old people who used to be one of the first two. If you’re Alan Greenspan and you spent your time running the Fed by trying to keep it at arm’s length from the market, fine. That’s your schtick, and besides the housing bubble, it worked pretty well for you. But either own that schtick or come out and say you were wrong, don’t try to have it both ways. If you’re still Mr. Free Market, too big to fail can’t exist because failure is a risk that everyone shares regardless of size and consequences. If you believe the only solution to this problem is to take a wrecking ball to an entire industry, then logic would dictate that you admit your policies were failures. Puff it or pass it, man.

Here at LOLFed, from time to time, we like to point a gnarled finger of blame at those in industry and government whom we feel are at least partially responsible for our current state of affairs. We have done so without regard to race, ethnicity, political party, gender, collegiate affiliation, or employer. As it happens, this has been a mistake.  At least, according to Brazilian president Luiz Inacio Lula da Silva.

“This crisis was caused by the irrational behavior of white people with blue eyes, who thought they knew everything and now show they know nothing,” Lula da Silva said after a meeting with the UK Prime Minister Gordon Brown in the country’s capital of Brasilia. 

[...] 

When challenged about his claims, Lula said: “I only record what I see in the press. I am not acquainted with a single black banker,” according the Guardian newspaper.

After some exhaustive research this morning into the matter (read: Google Image Search), I have compiled a list of the financial movers and shakers who fit Lula’s description and are therefore worthy of our scorn.

• Jimmy Cayne
• Jamie Dimon
• Ken Lewis
• Hank Paulson

And that’s it.  Paulson’s eyes may actually be grey; I discovered that if I looked directly into them for too long I began to turn to stone so I had to give it a quick glance and guess. Of those we so heartily mock, those four are the only persons that deserve it. Alan Greenspan? Brown eyes. Geithner? Same. Bandit? Indian. Johns Stumpf, Mack, and Thain? Brown. Ben Bernanke’s eyes are seedy black little things, devoid both of color and of emotion. If eyes are the windows to the soul, the lights were long ago turned off in Ben’s. Barney Frank? Brown. Chris Dodd? Can’t tell, for he is a squinty fellow. Chris Cox? Brown as well. Dick Fuld? I’d like to think he is sporting two black eyes. Angelo Mozilo? His eyes are actually spray-tan orange.

So there you have it. From now on, if anything goes wrong economy-wise, you’d better believe we will be right on top of it, figuring out how to blame one of those four men. Actually, we would never blame Jamie Dimon for anything, because we’re kind of afraid of him.

Warning: sky may be falling.

Former Fed chairman and known economic interventionist Alan Greenspan today predictably called for the nationalization of failing US banks, is what the headlines would read in an alternate universe, where we apparently now live.  Seriously, which one of you guys crossed the streams?  Crazy world we live in, up is down, Republican Senators also supporting nationalization…

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” [Greenspan] said. “I understand that once in a hundred years this is what you do.”

Alan Greenspan has himself been alive for one hundred years, so this is why he would say such a thing.  While he will likely never accept a bit of blame for helping cause the crisis, it’s nice to see him embracing a solution to it that might actually be viable.

What these wacky men are talking about is the Swedish model.  No, not the Swedish model with the blonde hair and the bikini and…well, this is a family site.  The Swedish banking model who is also surely very sexy and is the financial opposite of the Japanese model, which we are currently following, is what’s important here.  Under the Swedish model (where we’d all like to be, I’m sure), so called because it is what Sweden did, failing banks are nationalized until they are no longer failing banks and then banks are taken public again by the government, allowing the it to recoup most or all of the taxpayer money it sinks into the banks.  Crazy talk!

The Japanese model is to continue throwing money at failing banks, hoping that some of it will be magic money that fixes everything.  It worked for Japan about as well as it’s been working for us so far, which is all the reason in the world to assume it will begin to work soon, maybe after the next capital injection.  We just need to keep believing, even though Citi and BoA have had more given to them in bailout funds than either company is actually worth right now.