MacroScope

Who do you blame for the credit crisis?

Greedy bankers are routinely blamed for the credit crisis but one British-based poll of — well, financiers — spreads the blame more widely.

Gary Jenkins, head of fixed income research at Evolution Securities, wanted a more specific scapegoat and ran a poll of about 200 mostly fund managers and investors asking them to pick their credit crisis culprit. Former U.S. Federal Reserve Chairman Alan Greenspan was the clear winner, picking up 35 percent of the votes. He has been widely criticised over the past year for low interest rate policies that helped fuel the credit boom.

Former U.S. president Bill Clinton also figured quite prominently with about 10 percent of  votes, and British prime minister Gordon Brown got quite a few.

Some bankers were singled out, including Fred Goodwin, former chief executive of Royal Bank of Scotland and Richard Fuld, the head of collapsed Lehman Brothers.

In a related article in Euroweek, Jenkins also had a unique culprit — Bill Gates of Microsoft. None of the maths behind structured credit could be done without spreadsheets like Excel, Jenkins reckons.

So who do you think is to blame?

(Reuters photo: Kevin Lamarque)

Greenspan slammed II

Jeremy Gaunt

Mar 12, 2009 10:06 EDT

Criticism of former Fed Chairman Alan Greenspan, as delineated earlier on MacroScope by Mark Felsenthal, is stretching beyond his legacy.  Calls are being made in Britain for Greenspan to be stripped of his honorary knighthood.

The latest salvo comes from Albert Edwards, an outspoken London-based analyst at Societe Generale.  He accuses the ex-Fed chief of “criminally poor policy making, economic negligence and a worrying total lack of insight for what he has done”.

Perhaps most hurtful for Greenspan — if he cares — is Edwards’ idea that Greenspan should lose the  ”Sir” before  Sir Fred Goodwin does.  In Britain, the former chief executive of Royal Bank of Scotland, has become the poster child for irrationally exuberant executive payouts.

from Davos Notebook:

It’s never too late to blame Greenspan

James Saft

Jan 29, 2009 04:55 EST

Alan Greenspan hasn't been chairman of the Fed for three years, but his policy mistakes keep paying dividends in the form of blame at this year's World Economic Forum in Davos.

Polish Finance Minister Jacek Rostowski yesterday:

"This was the failure of one of the key institutions in the world." During the Greenspan era he said they continually met downturns and distress with easing and "eliminated fear."

Ken Rosen of Berkeley, who was writing about the housing bubble in 2005 or so, is in the same camp:

"Alan Greenspan personally prevented some needed regulations being put in place. The free market fundamentalism we had was a mistake, to go the other way would also be a mistake.

We had excessively loose monetary policy and regulations on these aggressive loans were not put in place. There were Fed board members who wanted to do it, and Greenspan himself said the had too much belief in the market. ...it was a global problem of excess credit led by the central bank in the U.S. but ratified by the central banks around the world."

Maybe history will be kinder to his reputation as a jazz musician.

New committee to save the world

Corbett B. Daly

Nov 15, 2008 18:51 EST

In the late 1990s, when the Asian Financial Crisis was in full swing, Time Magazine dubbed then Treasury Secretary Robert Rubin, his deputy Lawrence Summers and then Federal Reserve Board Chairman Alan Greenspan as “The Committee to Save the World.”

On Saturday, a new committee convened in Washington, only this time the crisis is global, and now there are 20 members. Leaders from the 20 richest countries came together and backed a 10-page plan for the global economic crisis, agreeing on the need for measures to spur growth, better financial market rules and more say for emerging countries.

Sexy stuff, right?

Here’s a sample paragraph:

“Regulators should develop enhanced guidance to strengthen banks’ risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management. * Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions. * Supervisors should ensure that financial firms develop processes that provide for timely and comprehensive measurement of risk concentrations and large counterparty risk positions across products and geographies. * Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts. * The Basel Committee should study the need for and help develop firms’ new stress testing models, as appropriate. * Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. * Banks should exercise effective risk management and due diligence over structured products and securitization.”

Eyes glazed over yet?

But don’t discount it, because if it works, it could help get us all out of the worst global economic situation since the Great Depression.