Passing the buck on the subprime crisis

Passing the buck on the subprime crisis
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First Published: Fri, Dec 14 2007. 11 27 PM IST
Updated: Fri, Dec 14 2007. 11 27 PM IST
Alan Greenspan’s The Wall Street Journal op-ed this week isn’t an edifying read.
It’s not that the article on the roots of the US mortgage crisis and the role of the Fed is badly argued. The problem is its “it wasn’t my fault” subtext.
Likewise, Sandy Weill told Bloomberg that the new bosses at Citigroup Inc. need to take action because the world has changed since he was in charge. But many of the bank’s problems stem from his failure to integrate the sprawling empire he built.
Both men seem to be protesting rather too much. Take Greenspan’s line: “I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own.”
In other words, the Fed couldn’t have done anything to prevent Internet stocks and then house prices rocketing and then crashing back to earth.
That’s hardly consistent with the former Fed chairman’s apparent belief that cutting interest rates at the slightest sign of trouble—the “Greenspan put”—would effectively head off economic trouble.
As for Citigroup, Chuck Prince lost the top job partly because of risk management shortcomings in recent years. But longer-term, he also struggled with some success, but not enough for shareholders to glue together the disparate businesses that his predecessor, Weill, had assembled.
Greenspan and Weill aren’t alone. It might owe something to sour grapes, but Hank Greenberg, the architect of insurance giant American International Group Inc. (AIG), last month indicated dissatisfaction with the management of the company, which still looks much like the edifice he built.
Of course, those still working are also trying to repair damage to their reputations before it’s too late. Among them are private equity titan Steve Schwarzman, who recently called his industry “a force for good,” and the rating agencies, which are suddenly emphasising how little should be read into their opinions.
For the retirees, though, it’s probably too late to solve the problems they caused—so the most they can offer is an effort to rewrite history.
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First Published: Fri, Dec 14 2007. 11 27 PM IST