Nevertheless, his documentation of Greenspan's record includes his insistence that deregulated banks like Lincoln Savings and Loan in the 1980s would do just fine. Greenspan, in his book, concedes the point. "I was wrong about Lincoln" [page 115]. But much went wrong on Greenspan's watch at the Fed, the author says.
Cheap-money policies misled millions of Americans, who took billions of dollars of home equity through questionable loans and threw the money back, first into the stock market and then the housing market. The cost of society of vaporizing trillions in capital via these back-to-back bubbles is still being calculated. But it's clear millions of retirements will be postponed and millions of dreams will be deferred permanently.
Yet Greenspan, as late as just two years ago, praised the technology that made subprime loans widely available. "This fact," the author quotes Greenspan, "underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers" [page 160].
Indeed, the Fed wanted everyone to have cheap money, no matter how unqualified they may have been. A 1992 Boston Fed study says, "Discrimination may be observed when a lender's underwriting policies contain certain arbitrary or outdated criteria that effectively disqualify many urban or low-income minority applicants."
The Boston Fed's policy was Greenspan's. In his Age of Turbulence, Greenspan writes that he understood that subprime loans were risky. "But I believed then, as now, that the benefits of broadened home ownership are worth the risk" [page 233].
The risk was many Americans started mortgaging their homes so they could buy in to a stock market that supposedly never went down. They believed stocks would always do well. Stocks became tulips. They believed the Fed's cheap-money policies combined with fabled technology and productivity gains had outlawed the business cycle. They were wrong.
Now, with the bears roaring on Wall Street and a recession just around the corner, the Fed is again curiously cutting interest in the hopes of reviving Wall Street and Main Street. Will someone be writing this book again some 10 years from now?