Reinhart explains that Greenspan quote
It’s official: Greenspan wasn’t talking about the housing bubble, or economic policy at all, in the now-famous quote from the March 2004 minutes where he talks about the risks “of inducing people to join in on the debate”. We’ve got it straight from the horse’s mouth: Vincent Reinhart is the man that Greenspan was talking to, and he explains exactly what the context was:
Alan Greenspan’s comment was in response to a briefing I had just given on an inside-baseball topic. The FOMC had been considering moving up when to release its minutes, which are a ten- to fifteen-page summary of the discussion at the meeting. Up to then, the minutes were released after the next regularly scheduled FOMC meeting. Staff had run an experiment to see if the minutes could be prepared quickly to be released sooner—before the next meeting. (The issue was not in the drafting, but rather in incorporating comments and a final approval from policy makers with hectic schedules.) In a short briefing, I asked a narrow question whether the FOMC’s discussion of such transparency issues at the prior meeting should be included in that meeting’s minutes. (In the event, the FOMC was transparent about transparency and also did expedite the release of the minutes.)
My remarks sparked a general observation from Chairman Greenspan on limits to transparency. Specifically, he said, “We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.”
For those not familiar in parsing his prose, Greenspan was noting that letting the world know that top Fed officials were considering an issue would draw attention to that issue, which might sometimes be uncomfortable. This is a debatable proposition, to be sure, but not one that sounds conspiratorial.
That is, unless you have the imagination of Ryan Grim, who linked this obviously general discussion of the timing of the release of the minutes to the specific mention of housing prices 45 pages (and four hours in real time) earlier. To do so, Grim also had to elevate a mention about real-estate speculation by the president of the Federal Reserve Bank of Atlanta, Jack Guynn, into Cassandra’s warning. That comment, by the way, came in the same set of remarks in which Guynn noted a little later on that the price of steel fence posts had doubled.
We do at least now know what Grim means by “moments earlier”: he means “four hours earlier”.
Still, the fact is that Grim’s story about Greenspan is, in Reinhart’s phrase, “too good to check”. And it’s already found its way into the Greenspan lore, along with a lot of more accurate stories about him.