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Alan Greenspan

Alan Greenspan


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Alan Greenspan was chairman of the Federal Reserve under both presidents Bill Clinton and George W. Bush.


Greenspan admits ‘mistake’ that helped crisis

Badgered by lawmakers, former Federal Reserve Chairman Alan Greenspan denied the nation’s economic crisis was his fault on Thursday but conceded the meltdown had revealed a flaw in a lifetime of economic thinking and left him in a “state of shocked disbelief.”

Greenspan, who stepped down in 2006, called the banking and housing chaos a “once-in-a-century credit tsunami” that led to a breakdown in how the free market system functions. And he warned that things would get worse before they get better, with rising unemployment and no stabilization in housing prices for “many months.”

Gloomy economic reports backed him up. New jobless claims soared to just under 500,000 for last week, and Goldman Sachs, Chrysler and Xerox all said they were cutting thousands more workers. On Wall Street, the Dow Jones industrials bounced erratically all day before finishing up 172 points — after a two-day drop of nearly 750.

The financial crisis even prompted the Republican Greenspan, a staunch believer in free markets, to propose that government consider tougher regulations, including requiring financial firms that package mortgages into securities to keep a portion as a check on quality.

He said other regulatory changes should be considered, too, in such areas as fraud.

Also looking for solutions, another banking regulator told Congress the government was working on a loan-guarantee plan that could help many homeowners escape foreclosure as part of the $700 billion bailout legislation. That plan is being discussed by the Treasury Department and the Federal Deposit Insurance Corp., said FDIC Chairman Sheila Bair, who is pushing the idea.

Greenspan’s interrogation by the House Oversight Committee was a far cry from his 18½ years as Fed chairman, when he presided over the longest economic boom in the country’s history. He was viewed as a free-market icon on Wall Street and held in respect bordering on awe by most members of Congress.

Not now. At an often contentious four-hour hearing, Greenspan, former Treasury Secretary John Snow and Securities and Exchange Commission Chairman Christopher Cox were repeatedly accused by Democrats on the committee of pursuing an anti-regulation agenda that set the stage for the biggest financial crisis in 70 years.

“The list of regulatory mistakes and misjudgments is long,” panel chairman Henry Waxman declared.

Greenspan, 82, acknowledged under questioning that he had made a “mistake” in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that “a flaw in the model . that defines how the world works.”

He acknowledged that he had also been wrong in rejecting fears that the five-year housing boom was turning into an unsustainable speculative bubble that could harm the economy when it burst. Greenspan maintained during that period that home prices were unlikely to post a significant decline nationally because housing was a local market.

He said Thursday that he held to that belief because until the current housing slump there had never been such a significant decline in prices nationwide. He said the current financial crisis had “turned out to be much broader than anything that I could have imagined.”

Greenspan’s much-anticipated appearance before the House panel came as the Senate Banking Committee held its own hearing on what the government is doing now to get out of the mess.

Assistant Treasury Secretary Neel Kashkari, who is overseeing the $700 billion financial rescue effort that passed Congress on Oct. 3, said the administration was not only working to get federal purchases of bank stock started quickly but also the program to mop up troubled mortgage-related assets. He also said the government was working to make sure that directives in the legislation to help struggling homeowners avoid foreclosure were being addressed.

Kashkari said the plan could include setting standards that banks should follow for reworking mortgages to make them more affordable. He said the administration was considering a recommendation to provide government loan guarantees to cover the reworked mortgages to make the program more attractive to banks.

“We are passionate about doing everything we can to avoid preventable foreclosures,” Kashkari told the committee.

The FDIC’s Bair told the same Senate panel that the government needs to do more to help tens of thousands of people avoid foreclosure.

She said the FDIC was working “closely and creatively” with the Treasury Department to come up with a plan.

Greenspan was asked to defend a variety of actions he took as Federal Reserve chairman — resisting recommendations to use the Fed’s powers to crack down on subprime mortgages, for one. And opposing efforts to impose regulations on derivatives, the complex financial instruments that include credit default swaps, which have also figured prominently in the current crisis.

He said that outside of credit default swaps, the bulk of financial derivatives had not caused major problems. He said the boom in subprime lending occurred because of the huge demand for investment opportunities in a global economy, and he blamed the crash on a failure by investors to properly assess the risks from such mortgages, which went to borrowers with weak credit.

As for firms that package mortgages into securities, he said, “As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue.”

On the billions of dollars of losses suffered by financial institutions because of their investments in subprime mortgages, Greenspan said he had been shocked by the failure of banking officials to protect their shareholders from their bad loan decisions.

“A critical pillar to market competition and free markets did break down,” Greenspan said. “I still do not fully understand why it happened.”

SEC Chairman Cox told the House panel that “somewhere in this terrible mess, laws were broken.” And Snow said that lawmakers should have responded more quickly to his pleas for stronger regulation for mortgage giants Fannie Mae and Freddie Mac, which were taken over by the government last month.

In the meantime, Kashkari, the Treasury official overseeing the bailout program, said there has been much progress, resulting in “numerous signs of improvement in our markets and in the confidence in our financial institutions.” Still, he cautioned, “the markets remain fragile.”


Alan Greenspan owes America an apology

A lan Greenspan will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market. The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date approaching $5tn.

These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt.

The horror story could have easily been prevented had there been intelligent life at the Federal Reserve Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities.

Most people who had this incredible infamy attached to their name would have the decency to find a large rock to hide behind but not Alan Greenspan. He apparently believes that he has not punished us enough. Greenspan has a new book which he is now hawking on radio and television shows everywhere.

The book, which I have not read, is ostensibly Greenspan's wisdom about the economy and economics. But he also tells us that his problem as Fed chair was that he just didn't know about the flood of junk mortgages that was fueling the unprecedented rise in house prices during the bubble years. He has used this ignorance to explain his lack of action – or even concern – about the risks posed by the bubble.

Greenspan's "I didn't know" excuse is so absurd as to be painful. The explosion of exotic mortgages in the bubble years was hardly a secret. It was frequently talked about in the media and showed up in a wide variety of data sources, including those produced by the Fed. In fact, there were widespread jokes at the time about "liar loans" or "Ninja loans". The latter being an acronym for the phrase, "no income, no job, no assets".

The fact that banks were issuing fraudulent mortgages by the millions, and that the Wall Street crew was securitizing them as fast as they could get them, was not top secret information available only to those with special security clearance. This was the economy in the years 2002-2006.

It was impossible to look at the economy in these years and not see the role of the housing bubble and the tsunami of bad mortgages that fueled it. The run-up in house prices led to a near record pace of construction. Typically housing construction is around 4.5% of GDP. It peaked at 6.5% in 2005. Greenspan didn't notice? Who did he think was going to live in all these units, the building of which had created record vacancy rates as early as 2003?

And he didn't notice that the spike in house prices had led to a surge in consumption pushing saving rates to nearly zero? He actually co-authored several pieces on exactly this topic with another Fed economist. Between the 100% predictable collapse of residential construction and the plunge in consumption that would follow the loss of the housing wealth that was driving it, we were looking at a loss of more than $1tn in annual demand. What did Greenspan think would fill this gap, purchases of Ayn Rand's books?

Greenspan had all the information that he could have possibly needed to spot the housing bubble and to know its collapse would be really bad news for the economy. More than anyone else in the country he was in a position to stop the growth of the bubble.
Suppose that, instead of extolling the wonders of adjustable rate mortgages, Greenspan used his public addresses to warn people that they were buying into an overpriced housing market and he warned investors that the subprime mortgage backed securities they were buying were filled with fraudulent mortgages. Suppose further that he used the Fed's research staff to document these facts.

Greenspan could have used the regulatory powers of the Fed to crack down on the bad mortgages being issued by the banks under the Fed's jurisdiction, as his fellow governor Edward Gramlich urged. And, he could have arranged to have a meeting with other federal and state regulators to see what they were doing to prevent mortgage fraud in the financial institutions under their jurisdictions as well.

Those are the actions that we had a right to expect from a Fed chair faced with the growth of a dangerous asset bubble. That is what Alan Greenspan would have done if he had been earning his salary. Instead, he did nothing. He cheered on the bubble until it burst and then he said it wasn't his fault.

This man has nothing to tell the country about the economy and the media is not doing its job to imply otherwise. If Greenspan doesn't have the decency to keep himself out of public view after all the damage he has done to the country, then the media should do it for him. The only thing he has to say that would be newsworthy is that he's sorry.


Contents

Greenspan was born in the Washington Heights area of New York City. His father, Herbert Greenspan, was of Romanian Jewish descent, and his mother, Rose Goldsmith, was of Hungarian Jewish descent. [10] After his parents divorced, Greenspan grew up with his mother in the household of his maternal grandparents who were born in Russia. [11] His father worked as a stockbroker and market analyst in New York City. [12]

Greenspan attended George Washington High School from 1940 until he graduated in June 1943, where one of his classmates was John Kemeny. [13] He played clarinet and saxophone along with Stan Getz. He further studied clarinet at the Juilliard School from 1943 to 1944. [14] Among his bandmates in the Woody Herman band was Leonard Garment, Richard Nixon's special counsel. In 1945, Greenspan attended New York University's Stern School of Business, where he earned a B.A. degree in economics summa cum laude in 1948 [15] and an M.A. degree in economics in 1950. [16] At Columbia University, he pursued advanced economic studies under Arthur Burns but dropped because of his increasing work demand at Townsend-Greenspan & Company. [17]

In 1977, Greenspan obtained a Ph.D. in economics from New York University. His dissertation is not available from the university [18] since it was removed at Greenspan's request in 1987, when he became chairman of the Federal Reserve Board. In April 2008, however, Barron's obtained a copy and notes that it includes "a discussion of soaring housing prices and their effect on consumer spending it even anticipates a bursting housing bubble". [19]

Before the Federal Reserve Edit

During his economics studies at New York University, Greenspan worked under Eugene Banks, a managing director at the Wall Street investment bank Brown Brothers Harriman, in the firm's equity research department. [20] From 1948 to 1953, Greenspan worked as an analyst at the National Industrial Conference Board (currently known as the Conference Board), a business- and industry-oriented think tank in New York City. [21] Before he was appointed chairman of the Federal Reserve, from 1955 to 1987 Greenspan was chairman and president of Townsend-Greenspan & Co., Inc., an economics consulting firm in New York City. His 32-year stint there was interrupted only from 1974 to 1977, when he served as chairman of the Council of Economic Advisers under President Gerald Ford. [ citation needed ]

In mid-1968, Greenspan agreed to serve as Richard Nixon's coordinator on domestic policy in the nomination campaign. [22] Greenspan has also served as a corporate director for Aluminum Company of America (Alcoa) Automatic Data Processing Capital Cities/ABC, Inc. General Foods J.P. Morgan & Co. Morgan Guaranty Trust Company Mobil Corporation and the Pittston Company. [23] [24] He was a director of the Council on Foreign Relations foreign policy organization between 1982 and 1988. [25] He also served as a member of the influential Washington-based financial advisory body, the Group of Thirty in 1984. [ citation needed ]

Chairman of the Federal Reserve Edit

What I've learned at the Federal Reserve is a new language which is called "Fed-speak". You soon learn to mumble with great incoherence.
— Alan Greenspan [26]

On June 2, 1987, President Ronald Reagan nominated Greenspan as a successor to Paul Volcker as chairman of the Board of Governors of the Federal Reserve, and the Senate confirmed him on August 11, 1987. [27] Investor, author and commentator Jim Rogers has said that Greenspan lobbied to get this chairmanship. [28]

Two months after his confirmation Greenspan said immediately following the 1987 stock market crash that the Fed "affirmed today its readiness to serve as a source of liquidity to support the economic and financial system". [29] [30] [31] Although the Federal Reserve followed its announcement with monetary policy actions, which became known as the Greenspan put, George H. W. Bush attributed his re-election loss to a sluggish response. Democratic president Bill Clinton reappointed Greenspan, and consulted him on economic matters. Greenspan lent support to Clinton's 1993 deficit reduction program. [32] Greenspan was fundamentally monetarist in orientation on the economy, and his monetary policy decisions largely followed standard Taylor rule prescriptions (see Taylor 1993 and 1999). Greenspan also played a key role in organizing the U.S. bailout of Mexico during the 1994–1995 Mexican peso crisis. [33]

In 2000, Greenspan raised interest rates several times these actions were believed by many to have caused the bursting of the dot-com bubble. According to Nobel laureate Paul Krugman, however, "he didn't raise interest rates to curb the market's enthusiasm he didn't even seek to impose margin requirements on stock market investors. Instead, he waited until the bubble burst, as it did in 2000, then tried to clean up the mess afterward". [34] E. Ray Canterbery agrees with Krugman's criticism. [35]

In January 2001, Greenspan, in support of President Bush's proposed tax decrease, stated that the federal surplus could accommodate a significant tax cut while paying down the national debt. [36]

In autumn 2001, as a decisive reaction to the September 11 attacks and various corporate scandals which undermined the economy, the Greenspan-led Federal Reserve initiated a series of interest cuts that brought down the federal funds rate to 1% in 2004. While presenting the Federal Reserve's Monetary Policy Report in July 2002, he said that "It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously", and suggested that financial markets need to be more regulated. [37] His critics, led by Steve Forbes, attributed the rapid rise in commodity prices and gold to Greenspan's loose monetary policy, which Forbes believed had caused excessive asset inflation and a weak dollar. By late 2004, the price of gold was higher than its 12-year moving average.

Greenspan advised senior members of the George W. Bush administration to depose Saddam Hussein for the sake of the oil markets. [38] He believed that even a moderate disruption to the flow of oil could translate into high oil prices [39] which could lead to "chaos" in the global economy and bring the industrial world "to its knees". [40] He feared that Saddam could seize control of the Straits of Hormuz and restrict the transport of oil through them. In a 2007 interview, he said, "people do not realize in this country, for example, how tenuous our ties to international energy are. That is, we on a daily basis require continuous flow. If that flow is shut off, it causes catastrophic effects in the industrial world. And it's that which made him [Saddam] far more important to get out than bin Laden." [41]

On May 18, 2004, Greenspan was nominated by President George W. Bush to serve for an unprecedented fifth term as chairman of the Federal Reserve. He was previously appointed to the post by Presidents Reagan, George H. W. Bush, and Clinton.

In a May 2005 speech, Greenspan stated: "Two years ago at this conference I argued that the growing array of derivatives and the related application of more-sophisticated methods for measuring and managing risks had been key factors underlying the remarkable resilience of the banking system, which had recently shrugged off severe shocks to the economy and the financial system. At the same time, I indicated some concerns about the risks associated with derivatives, including the risks posed by concentration in certain derivatives markets, notably the over-the-counter (OTC) markets for U.S. dollar interest rate options." [42]

Greenspan opposed tariffs against the People's Republic of China for its refusal to let the yuan rise, [43] suggesting instead that any American workers displaced by Chinese trade could be compensated through unemployment insurance and retraining programs. [44]

Greenspan's term as a member of the board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor.

As chairman of the board, Greenspan did not give any broadcast interviews from 1987 through 2005. [45]

After the Federal Reserve Edit

Immediately after leaving the Fed, Greenspan formed an economic consulting firm, Greenspan Associates LLC. [46] He also accepted an honorary (unpaid) position at HM Treasury in the United Kingdom.

On February 26, 2007, Greenspan forecast a possible recession in the United States before or in early 2008. [47] Stabilizing corporate profits are said to have influenced his comments. The following day, the Dow Jones Industrial Average decreased by 416 points, losing 3.3% of its value. [48]

In May 2007, Greenspan was hired as a special consultant by Pacific Investment Management Company (PIMCO) to participate in their quarterly economic forums and speak privately with the bond managers about Fed interest rate policy. [49]

In August 2007, Deutsche Bank announced that it would be retaining Greenspan as a senior advisor to its investment banking team and clients. [50]

In mid-January 2008, hedge fund Paulson & Co. hired Greenspan as an adviser. According to the terms of their agreement he was not to advise any other hedge fund while working for Paulson. In 2007 Paulson had foreseen the collapse of the sub-prime housing market and hired Goldman Sachs to package their sub-prime holdings into derivatives and sell them. Some economic commentators blamed this collapse on Greenspan's policies while at the Fed. [51] [52]

On April 30, 2009, Greenspan offered a defense of the H-1B visa program, telling a U.S. Senate subcommittee that the visa quota is "far too small to meet the need" and saying that it protects U.S. workers from global competition, creating a "privileged elite". Testifying on immigration reform before the Subcommittee on Immigration, Border Security and Citizenship, he said more skilled immigration was needed "as the economy copes with the forthcoming retirement wave of skilled baby boomers". [53]

Memoir Edit

Greenspan wrote a memoir titled The Age of Turbulence: Adventures in a New World, published September 17, 2007. [54] [55] Greenspan says that he wrote this book in longhand mostly while soaking in the bathtub, a habit he regularly employs ever since an accident in 1971, when he injured his back. [56] Greenspan wrote:

To this day, the bathtub is where I get many of my best ideas. My assistants have gotten used to typing from drafts scrawled on damp yellow pads—a chore that got much easier once we found a kind of pen whose ink doesn't run. Immersed in my bath, I'm as happy as Archimedes as I contemplate the world. [57]

Greenspan discusses in his book, among other things, his history in government and economics, capitalism and other economic systems, current issues in the global economy, and future issues that face the global economy. In the book Greenspan criticizes President George W. Bush, Vice President Dick Cheney, and the Republican-controlled Congress for abandoning the Republican Party's principles on spending and deficits. Greenspan's criticisms of President Bush include his refusal to veto spending bills, sending the country into increasingly deep deficits, and for "putting political imperatives ahead of sound economic policies". [58] Greenspan writes, "They swapped principle for power. They ended up with neither. They deserved to lose [the 2006 election]". [56] [59] He praised Bill Clinton above all the other presidents for whom he'd worked for his "consistent, disciplined focus on long-term economic growth". [60] Although he respected what he saw as Richard Nixon's immense intelligence, Greenspan found him to be "sadly paranoid, misanthropic and cynical". He said of Gerald Ford that he "was as close to normal as you get in a president, but he was never elected". [59] Regarding future U.S. economic policy, Greenspan recommends improving the U.S. primary and secondary education systems. He asserts this would narrow the inequality between the minority of high-income earners and most workers whose wages have not grown in proportion with globalization and the nation's GDP growth. [61]

In the early 1950s, Greenspan began an association with novelist and philosopher Ayn Rand. [54] Greenspan was introduced to Rand by his first wife, Joan Mitchell. Rand nicknamed Greenspan "the undertaker" because of his penchant for dark clothing and reserved demeanor. Although Greenspan was initially a logical positivist, [62] he was converted to Rand's philosophy of Objectivism by her associate Nathaniel Branden. He became one of the members of Rand's inner circle, the Ayn Rand Collective, who read Atlas Shrugged while it was being written. During the 1950s and 1960s Greenspan was a proponent of Objectivism, writing articles for Objectivist newsletters and contributing several essays for Rand's 1966 book Capitalism: The Unknown Ideal including an essay supporting the gold standard. [63] [64] During the 1960s Greenspan offered a ten-lecture course, "The Economics of a Free Society", under the auspices of the Nathaniel Branden Institute. The course highlighted the causes of prosperity and depression, the consequences of government intervention, and the fallacies of collectivist economics. [65] Rand stood beside him at his 1974 swearing-in as chair of the Council of Economic Advisers. Greenspan and Rand remained friends until her death in 1982. [54]

Greenspan has come under criticism from Harry Binswanger, [66] who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. When questioned in relation to this, however, he has said that in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled. He said he himself had to make such compromises, because he believes that "we did extremely well" without a central bank and with a gold standard. [67] In a congressional hearing on October 23, 2008, Greenspan admitted that his free-market ideology shunning certain regulations was flawed. [68] When asked about free markets and Rand's ideas, however, Greenspan clarified his stance on laissez faire capitalism and asserted that in a democratic society there could be no better alternative. He stated that the errors that were made stemmed not from the principle, but from the application of competitive markets in "assuming what the nature of risks would be". [69]

E. Ray Canterbery has chronicled Greenspan's relationship with Rand, and has concluded that the influence has had pernicious effects on Greenspan's monetary policy. [70]

Housing bubble Edit

In the wake of the subprime mortgage and credit crisis in 2007, Greenspan stated that there was a bubble in the U.S. housing market, warning in 2007 of "large double digit declines" in home values "larger than most people expect". [71] Greenspan also noted, however, "I really didn't get it until very late in 2005 and 2006." [72]

Greenspan stated that the housing bubble was "fundamentally engendered by the decline in real long-term interest rates", [73] though he also claims that long-term interest rates are beyond the control of central banks because "the market value of global long-term securities is approaching $100 trillion" and thus these and other asset markets are large enough that they "now swamp the resources of central banks". [74]

After the September 11, 2001 attacks, the Federal Open Market Committee voted to reduce the federal funds rate from 3.5% to 3.0%. [75] Then, after the accounting scandals of 2002, the Fed dropped the federal funds rate from then current 1.25% to 1.00%. [76] Greenspan stated that this drop in rates would have the effect of leading to a surge in home sales and refinancing, adding that "Besides sustaining the demand for new construction, mortgage markets have also been a powerful stabilizing force over the past two years of economic distress by facilitating the extraction of some of the equity that homeowners have built up over the years". [76]

According to some, however, Greenspan's policies of adjusting interest rates to historic lows contributed to a housing bubble in the United States. [77] The Federal Reserve acknowledged the connection between lower interest rates, higher home values, and the increased liquidity the higher home values bring to the overall economy: "Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission". [78]

In a February 23, 2004, speech, [79] Greenspan suggested that more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to the current interest in the market. [80] The Fed's own funds rate was at a then all-time-low of 1%. A few months after his recommendation, Greenspan began raising interest rates, in a series of rate hikes that would bring the funds rate to 5.25% about two years later. [81] A triggering factor in the 2007 subprime mortgage financial crisis is believed to be the many subprime ARMs that reset at much higher interest rates than what the borrower paid during the first few years of the mortgage.

In 2008, Greenspan expressed great frustration that the February 23 speech was used to criticize him on ARMs and the subprime mortgage crisis, and stated that he had made countervailing comments eight days after it that praised traditional fixed-rate mortgages. [82] In that speech, Greenspan had suggested that lenders should offer to home purchasers a greater variety of "mortgage product alternatives" other than traditional fixed-rate mortgages. [79] Greenspan also praised the rise of the subprime mortgage industry and its tools for assessing credit-worthiness:

Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s. [83]

The subprime mortgage industry collapsed in March 2007, with many of the largest lenders filing for bankruptcy protection in the face of spiraling foreclosure rates. For these reasons, Greenspan has been criticized for his role in the rise of the housing bubble and the subsequent problems in the mortgage industry, [84] [85] as well as "engineering" the housing bubble itself.

In 2004 Businessweek magazine analysts argued: "It was the Federal Reserve-engineered decline in rates that inflated the housing bubble . the most troublesome aspect of the price runup is that many recent buyers are squeezing into houses that they can barely afford by taking advantage of the lower rates available from adjustable-rate mortgages. That leaves them fully exposed to rising rates. [86]

In September 2008 Joseph Stiglitz stated that Greenspan "didn't really believe in regulation when the excesses of the financial system were noted, (he and others) called for self-regulation—an oxymoron". [87] Greenspan, according to The New York Times, says he himself is blameless. [88] On April 6, 2005, Greenspan called for a substantial increase in the regulation of Fannie Mae and Freddie Mac: "Appearing before the Senate Banking Committee, the Fed chairman, Alan Greenspan, said the enormous portfolios of the companies—nearly a quarter of the home-mortgage market—posed significant risks to the nation's financial system should either company face significant problems." [89] Despite this, Greenspan still claims to be a firm believer in free markets, although in his 2007 biography he wrote, "History has not dealt kindly with the aftermath of protracted periods of low risk premiums" as seen before the credit crisis of 2008.

In 2009 Robert Reich wrote that "Greenspan's worst move was to contribute to the giant housing bubble and the worst worldwide crash since the Great Depression. In 2004 he lowered interest rates to 1%, enabling banks to borrow money for free, adjusted for inflation. Naturally, the banks wanted to borrow as much as they possibly could, then lend it out, earning nice profits. The situation screamed for government oversight of lending institutions, lest the banks lend to unfit borrowers. He refused, trusting the market to weed out bad credit risks. It did not." [90]

In congressional testimony on October 23, 2008, Greenspan finally conceded error on regulation. The New York Times wrote, "a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending . Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken". Although many Republican lawmakers tried to blame the housing bubble on Fannie Mae and Freddie Mac, Greenspan placed far more blame on Wall Street for bundling subprime mortgages into securities. [91]

Late 2000s recession Edit

In March 2008, Greenspan wrote an article for the Financial Times ' Economists' Forum in which he said that the 2008-financial crisis in the United States is likely to be judged as the most wrenching since the end of World War II. In it he argued: "We will never be able to anticipate all discontinuities in financial markets." He concluded: "It is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition." The article attracted a number of critical responses from forum contributors, who, finding causation between Greenspan's policies and the discontinuities in financial markets that followed, criticized Greenspan mainly for what many believed to be his unbalanced and immovable ideological suppositions about global capitalism and free competitive markets. Notable critics included J. Bradford DeLong, Paul Krugman, Alice Rivlin, Michael Hudson, and Willem Buiter. [92]

Greenspan responded to his critics in a follow-up article in which he defended his ideology as applied to his conceptual and policy framework, which, among other things, prohibited him from exerting real pressure against the burgeoning housing bubble or, in his words, "leaning against the wind". Greenspan argued, "My view of the range of dispersion of outcomes has been shaken, but not my judgment that free competitive markets are by far the unrivaled way to organize economies". He concluded: "We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?" [93] Financial Times associate editor and chief economics commentator Martin Wolf defended Greenspan primarily as a scapegoat for the market turmoil. Several notable contributors in defense of Greenspan included Stephen S. Roach, Allan Meltzer, and Robert Brusca. [94]

However, an October 15, 2008, article in The Washington Post analyzing the origins of the economic crisis claims that Greenspan vehemently opposed any regulation of derivatives, and actively sought to undermine the office of the Commodity Futures Trading Commission when the commission sought to initiate regulation of derivatives. Meanwhile, Greenspan recommended improving mark-to-market regulations to avoid having derivatives or other complex assets marked to a distressed or illiquid market during times of material adverse conditions seen during the late 2000s credit crisis. [95]

Greenspan was not alone in his opposition to derivatives regulation. In a 1999 government report that was a key driver in the passage of the Commodity Futures Modernization Act of 2000—legislation that clarified that most over-the-counter derivatives were outside the regulatory authority of any government agency—Greenspan was joined by Treasury Secretary Lawrence Summers, Securities and Exchange Commission Chairman Arthur Levitt, and Commodity Futures Trading Commission Chairman William Ranier in concluding that "under many circumstances, the trading of financial derivatives by eligible swap participants should be excluded from the CEA" (Commodity Exchange Act). Other government agencies also supported that view. [96]

In Congressional testimony on October 23, 2008, Greenspan acknowledged that he was "partially" wrong in opposing regulation and stated "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity—myself especially—are in a state of shocked disbelief." [97] Referring to his free-market ideology, Greenspan said: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact." When Representative Henry Waxman (D-CA) pressed him to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said. "Absolutely, precisely", Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well." [98] Greenspan admitted fault [99] in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected.

Matt Taibbi described the Greenspan put and its bad consequences saying: "every time the banks blew up a speculative bubble, they could go back to the Fed and borrow money at zero or one or two percent, and then start the game all over", thereby making it "almost impossible" for the banks to lose money. [100] He also called Greenspan a "classic con man" who, through political savvy, "flattered and bullshitted his way up the Matterhorn of American power and . jacked himself off to the attention of Wall Street for 20 consecutive years". [101]

In the documentary film Inside Job, Greenspan is cited as one of the persons responsible for the financial crisis of 2007–2008. He is also named in Time magazine as one of the "25 People to Blame for the Financial Crisis". [102]

Political views and alleged politicization of office Edit

Greenspan describes himself as a "lifelong libertarian Republican". [59]

In March 2005, in reaction to Greenspan's support of President Bush's plan to partially privatize Social Security, then-Democratic Senate Minority Leader Harry Reid attacked Greenspan as "one of the biggest political hacks we have in Washington" [5] and criticized him for supporting Bush's 2001 tax cut plan. [6] Then-Democratic House Minority Leader Nancy Pelosi added that there were serious questions about the Fed's independence as a result of Greenspan's public statements. [103] Greenspan also received criticism from Democratic Congressman Barney Frank and others for supporting Bush's Social Security plans favoring private accounts. [104] [105] [106] Greenspan had said Bush's model has "the seeds of developing full funding by its very nature. As I've said before, I've always supported moves to full funding in the context of a private account". [107]

Others, like Republican Senator Mitch McConnell, disagreed that Greenspan was too deferential to Bush, stating that Greenspan "has been an independent player at the Fed for a long time under both parties and made an enormous positive contribution". [108]

Economist Paul Krugman wrote that Greenspan was a "three-card maestro" with a "lack of sincerity" who, "by repeatedly shilling for whatever the Bush administration wants, has betrayed the trust placed in the Fed chairman". [109]

Republican Senator Jim Bunning, who opposed Greenspan's fifth reconfirmation, charged that Greenspan should comment only on monetary policy, not fiscal policy. [110] Greenspan had used his position as Fed chairman to comment upon fiscal policy as early as 1993, however, when he supported President Clinton's deficit reduction plan, which included tax increases and budget cuts. [111]

In an October 2011 lecture addressing the Occupy movement, [112] Noam Chomsky characterized portions of Greenspan's February 1997 testimony to the U.S. Senate as an example of the self-serving attitudes of the so-called 1%. In that testimony, Greenspan had stated that growing worker insecurity is a significant factor keeping inflation and inflation expectation low, thereby promoting long-term investment. [113]

Greenspan has married twice. His first marriage was to Canadian artist Joan Mitchell in 1952 [114] the marriage ended in annulment less than a year later. [115] He dated newswoman Barbara Walters in the late 1970s. [54] In 1984, Greenspan began dating journalist Andrea Mitchell. Greenspan at the time was 58 and Mitchell was 38. In 1997, they were married by Supreme Court Justice Ruth Bader Ginsburg. [116] [117]

    Presidential Medal of Freedom The highest civilian award in the United States, by President George W. Bush in November 2005. [118]Department of Defense Medal for Distinguished Public Service[119]Commander of the Legion of Honour (France) 2000 Knight Commander of the Order of the British Empire (United Kingdom) 2002 [120]

In 1976, Greenspan received the U.S. Senator John Heinz Award for Greatest Public Service by an Elected or Appointed Official, an award given out annually by Jefferson Awards. [121]

In 2004, Greenspan received the Dwight D. Eisenhower Medal for Leadership and Service, from Eisenhower Fellowships. In 2005, he became the first recipient of the Harry S. Truman Medal for Economic Policy, presented by the Harry S. Truman Library Institute. In 2007, Greenspan was the recipient of the inaugural Thomas Jefferson Foundation Medal in Citizen Leadership, presented by the University of Virginia.

On December 14, 2005, he was awarded an honorary Doctor of Commercial Science degree by New York University, his fourth degree from that institution. [123] On April 19, 2012, Greenspan received the Eugene J. Keogh Award for Distinguished Public Service from NYU. [124]


Alan Greenspan's Financial History for Lobotomy Victims

Atlas shrugged all right. Ayn Rand's famous disciple whitewashes his past with the foggy rhetoric of collectivism. The meltdown was caused by, "the powerful economic forces that emerged in the aftermath of the Cold War," argues the former Fed Chairman. Rejecting the capitalist values of choice and personal accountability, he filters history through an intellectual construct where no one -- most notably Alan Greenspan -- ever takes the blame.

Before getting bogged down in Greenspan's blather and dissembling, here's an executive summary for those who remember what happened:

Before and After the Bush Years: The Numbers From a Capitalist Perspective

At the beginning of 2001, U.S. home mortgage debt was $5 trillion. At the end of 2006, it was $10 trillion. During those same six years, Americans withdrew $3.8 trillion in mortgage equity, twice the amount withdrawn throughout the entire 1990s. As Calculated Risk pointed out, the vast majority of GDP growth during those six years was traceable to that mortgage equity withdrawal.

This upward leveraging represented a sharp break from the past. From 1990 through 2000, home mortgage debt was about 50% of U.S. GDP. By the end of 2006, it was 73% of GDP, and two times the amount of Federal debt owed to the public. Throughout the 1980s and 1990s home mortgage debt was approximately equal to the size of Federal debt owed to the public.

The recklessness of this mortgage equity withdrawal was obvious, given the country's steadily declining personal savings rate.

Why did mortgage debt double in six years? Because the rise in home values was driven by low interest rates, as demonstrated by the IMF study cited by Greenspan in his paper.

Greenspan began slashing interest rates as soon as George W. Bush secured the Presidency in 2000. On December 31, 2000, the Fed Funds rate was 6-1/2% by May 15, 2001 it was 4% by November 2 it was 2%. Greenspan kept lowering rates, which he kept below 2% for three three years subsequent to the mild recession that ended in November 2001. Only after Bush secured his reelection in November 2004 did Greenspan raise the Fed funds rate back to 2%. The Fed Funds rate was restored to 4-1/2% when Greenspan left office at the end of January 2006, a few months before the real estate bubble began to collapse.

That $5 trillion incremental increase in home mortgage debt, much of which cannot be repaid, has permanently damaged our country's financial standing. One out of four homeowners with a mortgage has negative equity. The majority of under water mortgages are concentrated in four states: California, Florida, Arizona and Nevada.

When The Government Stopped Policing Fraud

That $5 trillion incremental increase is also traceable to a major policy shift from Clinton Administration policies to root out and prevent mortgage fraud. In 2000, fraud within the subprime mortgage sector was a huge story, covered by The New York Times, The Washington Post and ABC. Major subprime lenders such as The Money Store, First Alliance and ContiMortgage all shut down. After assessing the cumulative data from regulators and academic studies, HUD Secretary Andrew Cuomo declared, "Evidence indicates that the vast majority of mortgage fraud and predatory lending activities. occurs in the conventional subprime lending market." In June 2000, a joint HUD/Treasury Task Force recommended, among other things:

1. Laws to limit fraud by mortgage brokers,
2. Laws against negative amortization mortgages, and
3. Laws to prohibit Fannie and Freddie from making secondary purchases of loans secured without the due diligence necessary to confirm that the borrower could repay his obligation, i.e. a prohibition against no doc or "liar loans" and a prohibition against loans that were clearly beyond the means of the borrower.

In March 2000, Rep. Jan Schakowsky introduced legislation designed to prevent undue pressure on appraisers to inflate home valuations. In August 2001, 6000 appraisers signed a petition seeking government protections.

But by then it was too late. Phil Gramm had declared that no legislation against fraud was necessary because the data was anecdotal and the definition of predatory lending was unclear. He prevented any legislation from moving forward. In a 2001 prequel to the rants popularized Rick Santelli and Larry Kudlow, Gramm said the problem was the "predatory borrowers."

During the 2001 - 2006 real estate bubble, efforts to police mortgage fraud were consistently thwarted by the Bush Administration and Alan Greenspan. As Eliot Spitzer explained earlier, the Bush Administration, "embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye. [through] the Office of the Comptroller of the Currency (OCC)."

In 1994 Congress had passed Home Ownership and Equity Protection Act (HOEPA), which states: "The [Federal Reserve] Board, by regulation or order, shall prohibit acts or practices in connection with mortgage loans that the Board finds to be unfair, deceptive or designed to evade the provisions of this [legislation]." Despite a mountain of evidence of mortgage abuses, and a specific request by Board Governor Edward Gramlich to address the problem, Greenspan consistently refused to do anything.

Three prequels to the meltdown:In spite of three massive regulatory failures under his watch - the S&L Crisis, Long Term Capital Management, and Enron - Greenspan ignored the systemic dangers of mortgage fraud going viral, and the blind spots in financial markets dominated by hedge funds and credit derivatives, which grew exponentially after Phil Gramm's Enron Loophole was enacted in December 2000. When called to testify before Congress in October 2008, Greenspan acted like an amnesia victim, claiming: "I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Greenspan stepped up his campaign to obliterate history with his so-called "mea culpa" presented last Friday before the Brookings Institution. But his tepid "mistakes-were-made" concession gets lost amid 40 pages of half-truths and distortions. Here are some red herrings with a particularly acrid stench:

"The Global Savings Glut:" Like the juvenile delinquent who blames society for his crimes, Greenspan ascribes his low-interest rate policies to "global savings intentions [which] of necessity had chronically exceeded global intentions to invest." Except there were no excess savings within the United States. Tax cuts had caused an unprecedented decline Federal Revenues, while the country geared up from a new war and became ever more indebted to China. Yet Greenspan saw no reason to curb Americans' appetite for borowing. About 80% of subprime mortgages were based on short-term rates kept artificially low by Greenspan.

Affordable Housing Policy: Greenspan also invokes right-wing mythology, which blames the mortgage crisis on Fannie Mae and Freddie Mac. "Pressed by the Department of Housing and Urban Development and Congress to expand 'affordable housing commitments,' they chose to meet them by investing in subprime securities," he writes. He excludes critical facts to twist things around. The Washington Post revealed that HUD, under the Bush Administration, "neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable." This was a clear reversal of Clinton Adminsitration policy. So in 2004, when HUD revised its goals and started ignoring the predatory nature of the loans, Fannie and Freddie's subprime purchases of skyrocketed. These loans promoted the opposite affordable housing. But they did promote the business of the nation's biggest subprime lender, and Bush's largest donor, Roland Arnall's Ameriquest. Also, less than 10% of subprime loans were extended to first-time homebuyers.

The Black Swan/Irrational Exuberance Excuse: Here Greenspan ventures into complete fantasy:

The current crisis has demonstrated that neither bank regulators, nor anyone else, can consistently and accurately forecast whether, for example, subprime mortgages will turn toxic, or to what degree, or whether a particular tranche of a collateralized debt obligation will default, or even if the financial system as a whole will seize up.

The job of a regulator is not to "consistently and accurately forecast" anything. It's to assess whether the risks being taken are reckless, and whether the prevalence of reckless activity threatens the system. It's a job that Greenspan refused to perform, despite the signals from the S&L crisis, LTCM and Enron. But as it happens, any novice could figure out that the subrpime bonds were destined to fail. In MASTR Asset Backed Securities Trust 2005-NC2, which was very typical, 100% of the loans were interest-only, 60% of the loans closed with second liens (leaving the homeowners with zero equity), 58% relied on "stated documentation," and 55% of which were in California. Common sense tells you that the prevalence of liar loans and zero-equity homeowners in an overheated market will lead to big trouble.

The Phony Disconnect Between Mortgages and Short-Term Rates: Greenspan also resuscitates that old canard, that housing prices, and the bubble, were tied to long-term rates, not to the short-term rates that he slashed. Go here for a recounting on how he promoted adjustable rate mortgages to consumers who should have avoided them.

Of course the real estate bubble did eventually pop, following a typical monetary time lag of six to twelve months, after Greenspan restored the Fed funds rate above 4%.


Happy 19th birthday, 'irrational exuberance'! Greenspan's famous words

Alan Greenspan, then chairman of the Federal Reserve, used the phrase "irrational exuberance" in a speech he gave discussing the challenges of central banking. Greenspan was speaking at a dinner hosted by the American Enterprise Institute.

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past.

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability.

Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

Looking back, the most interesting thing about the speech was the market's relatively placid reaction. In the immediate aftermath, Asian markets fell 3 percent and domestic equities took a hit as well in a knee-jerk selloff. Yet within a few days, those losses had all but disappeared.

Within a few weeks, the S&P 500 Index was up over 10 percent from when Greenspan made his remarks. In fact, it took the Nasdaq composite more than three years to burst, spelling the end of the technology bubble.

Here's what the S&P 500 looked like during Greenspan's time at the Fed, with the six months after his "irrational exuberance" comment highlighted:


Contents

Mitchell was raised in a Jewish family, [4] in New Rochelle, New York, the daughter of Cecile and Sydney (Rubenstein) Mitchell. Her father was the chief executive officer and partial owner of a furniture manufacturing company in Manhattan. He was also the president of Beth El Synagogue in New Rochelle for 40 years. Her mother was an administrator at the New York Institute of Technology in Manhattan. [5] Her brother Arthur and his wife, Nancy Mitchell, moved to British Columbia in the 1970s. He has dual American and Canadian citizenship, becoming a member of the Legislative Assembly of Yukon and the leader of the Yukon Liberal Party in the 2000s. [6]

Mitchell graduated from New Rochelle High School. [7] She went on to attend the University of Pennsylvania where she received a Bachelor of Arts degree in English literature in 1967. While at Penn, she served as news director of student radio station WXPN. Staying in Philadelphia after graduation, she was hired as a reporter at KYW radio. She rose to prominence as the station's City Hall correspondent, during the Mayor Frank Rizzo’s administration and also reported for sister station KYW-TV.

She moved to CBS-affiliate WTOP (now WUSA) in Washington, D.C., in 1976. Two years later, Mitchell moved to NBC's network news operation, where she served as a general correspondent. In 1979, she was named the NBC News energy correspondent and reported on the late-1970s energy crisis and the Three Mile Island nuclear accident. Mitchell also covered the White House from 1981 until becoming chief congressional correspondent in 1988. [8]

Mitchell has been with NBC News since late July 1978.

She has been the Chief Foreign Affairs Correspondent for NBC News since November 1994. [9] Previously, she had served as Chief White House Correspondent (1993–1994) and Chief Congressional Correspondent (1988–1992) for NBC News. [8]

In 2005, Mitchell published a book titled Talking Back. to Presidents, Dictators, and Assorted Scoundrels (ISBN 978-0-143-03873-3), chronicling her work as a journalist.

Since 2008, Mitchell has hosted a program on NBC's news and commentary channel MSNBC titled Andrea Mitchell Reports. It broadcasts weekdays at 12:00 noon ET.

Plame affair Edit

A report in The Washington Post ("Bush Administration Is Focus of Inquiry CIA Agent's Identity Was Leaked to Media" by Mike Allen and Dana Priest, The Washington Post, September 28, 2003) that Mitchell had leaked Valerie Plame's identity led to her being questioned by the Federal Bureau of Investigation. While Mitchell never appeared before the investigating grand jury or in I. Lewis Libby's trial, she was on the subpoena list as a person of interest.

In October 2003, on the Capitol Report, Mitchell made a statement which Libby's defense construed to mean it was widely known among journalists that Joe Wilson's wife was in the Central Intelligence Agency (CIA), a position she later clarified by answering the question of how widely known it was in Washington that Wilson's wife worked for the CIA: [10] "It was widely known amongst those of us who cover the intelligence community and who were actively engaged in trying to track down who among the foreign service community was the envoy to Niger. But frankly I wasn't aware of her actual role at the CIA and the fact that she had a covert role involving weapons of mass destruction, not until Bob Novak wrote it."

Sudanese incident Edit

During a July 2005 news conference in Khartoum, Mitchell was forcibly ejected from a room after asking Sudanese President Omar al-Bashir some pointed questions. They included: "Can you tell us why the violence is continuing?" (referring to genocide in Sudan's Darfur province) and "Can you tell us why the government is supporting the militias?" "Why should Americans believe your promises?" [11] At this point two armed security guards grabbed her and forcibly shoved her out of the room.

After the incident Mitchell said, "It is our job to ask. They can always say 'no comment'. but to drag a reporter out just for asking is inexcusable behavior." [11]

Prior to the incident, Sudanese officials expressed reservations about allowing American newspaper or television reporters to join the Sudanese press pool. Sean McCormack, the State Department's assistant secretary for public affairs, said to his Sudanese counterpart, "I'll convey your desires about not permitting reporters to ask questions, but that's all I'll do. We have a free press." McCormack's Sudanese counterpart replied, "There is no freedom of the press here." [12] [13]

Reference to rural Virginia as "redneck" country Edit

During an appearance on MSNBC on June 5, 2008, Mitchell referred to the voters of the southwest Virginia region as rednecks. [14] [15] On June 9, she apologized on air, saying "I owe an apology to the good people of Bristol, Virginia, for something stupid that I said last week. I was trying to explain, based on reporting from Democratic strategists, why Barack Obama was campaigning in southwest Virginia, but without attribution or explanation, I used a term strategists often use to demean an entire community. No excuses, I'm really sorry." [16]

Romney's remarks at Wawa Edit

Having been led to believe that a clip showed that presidential candidate Mitt Romney was impressed by a touchscreen at a Wawa convenience store, Mitchell and contributor Chris Cillizza laughed when it was shown on Andrea Mitchell Reports, [17] alluding to a widely held myth that George H.W. Bush was unfamiliar with a supermarket scanner in an incident during his 1992 campaign. [18] She suggested this might be Romney's "supermarket scanner moment." [19] She said, "I get the feeling that Mitt Romney has not been in too many Wawas along the roadside of Pennsylvania." The full clip puts his comments in the context of his claim that Wawa's "touchtone keypads" (touchscreens) show efficiency in the private sector compared to his statement that it took multiple filings of a 33-page government form for an optometrist to change his address. [19] [20] [21] [22]

Mitchell briefly addressed complaints from the Republican National Committee and Romney's campaign the following day. Introducing the full clip, Mitchell stated, "The RNC and the campaign both reached out to us, saying that Romney had more to say on that visit about federal bureaucracy and innovation in the private sector. We didn't get a chance to play that, so here it is now." [20]

Warsaw Ghetto Uprising characterization Edit

In February 2019, Mitchell characterized the Warsaw Ghetto Uprising as being against "the Polish and Nazi regimes." She apologized on Twitter for her comment. The Polish Institute of National Remembrance sued Mitchell in Polish court for alleging that Poland played a role in the Holocaust [23]

She married her second husband, then Federal Reserve Chair Alan Greenspan, on April 6, 1997, following a lengthy relationship. [5] Previously, she was married to Gil Jackson that marriage ended in divorce in the mid-1970s.

On September 7, 2011, Mitchell revealed that she had been diagnosed with breast cancer during a doctor's visit a few weeks earlier. It was caught early and treated. [24]


Trend #2: Interest rates always return to normal range

Around the world, interest rates remain near all-time lows, and have even dropped below zero in parts of Europe and in Japan. Central bank policies have had a lot to do with that, but Dr. Greenspan believes that rates will eventually return to their historical range. The reason? Human behavior. He pointed to the yield on 10-year Treasury notes or their historical equivalents. "That number hasn’t changed since ancient Greece," he said. "You go back to ancient Rome, 5% to 8%."

Dr. Greenspan argued that present-day interest rates will likely come back to that level, at least at some point. He pinned part of the blame for today's ultra-low rates on inadequate or inaccurate economic forecasts, which may be undercounting productivity gains.

"The current suppressed interest rates are not going to hold at these levels because eventually human nature is going to turn out to be overwhelming ," he said.


A History of Fed Leaders and Interest Rates

Janet L. Yellen, the chairwoman of the Federal Reserve, is about to take the central bank into a new era by beginning a process of raising short-term interest rates, which rested near zero for seven years. How the economy responds to the Fed’s actions will go a long way toward defining Ms. Yellen’s tenure as the chief architect of the nation’s monetary policy.

Her three predecessors in recent decades all put their own distinctive stamp on the economy. Here is a brief look at their significant milestones and policy shifts in office:

Mr. Volcker inaugurates the Fed’s modern era, in which it has focused on moderating inflation, by raising interest rates relentlessly until the economy falters and prices start to rise more slowly.

October 1979: Mr. Volcker raises the Fed’s benchmark rate by 4 percentage points in a single month, to 15.5 percent. The first increase is announced after a secret and unscheduled meeting. It is a striking debut that signals the beginning of a new era at the Fed: The Fed targets the growth of the money supply as the best means to control inflation, allowing interest rates to swing more. The next year, Mr. Volcker tightens policy enough to push rates to 20 percent.

August 1982: The Fed eases off the monetary brakes, allowing interest rates to fall and the economy to begin a strong recovery.

June 1983: Inflation falls to 2.5 percent, after peaking at 14.6 percent just three years earlier. Mr. Volcker’s campaign fostered a pair of recessions (in 1980 and 1981-82) and led to a spike in unemployment. But by the middle of the decade, both joblessness and inflation are at low levels – an exact reversal of the high unemployment and high inflation that prevailed in much of the 1970s.

Mr. Greenspan presides over a “Great Moderation” – nearly two decades of strong growth, modest inflation and low unemployment, with just a few bumps along the way.

October 1987 : Shortly into Mr. Greenspan’s tenure, the Fed eases rates after the stock market crashes.

July 1988: In Mr. Greenspan’s early years as Fed chairman, inflation rises above 5 percent amid strong growth and doubts about the Fed’s post-Volcker backbone.

Mr. Greenspan’s response, a sharp increase in interest rates, pushed the economy into recession in the early 1990s, but it consolidates the Fed’s control. Neither inflation nor interest rates have returned to those heights in the last 25 years, and the recession is followed by the longest peacetime expansion in the nation’s history.

July 1996: Mr. Greenspan makes a winning bet in the mid-1990s, resisting pressure to raise interest rates as unemployment declines. He argues that increased productivity, including the fruits of the computer revolution, have increased the pace of sustainable growth. Indeed, the Fed finds itself debating whether there is such a thing as not enough inflation, and a new Fed governor named Janet L. Yellen plays an important role in convincing Mr. Greenspan that a little inflation helped to lubricate economic growth.

December 1996: Mr. Greenspan warns of the danger of “irrational exuberance” in financial markets, an admonition that goes unheeded. The Fed decides that popping bubbles is not part of its job description, leading critics to charge that Mr. Greenspan’s monetary policies spawned an era of booms and busts, culminating in the 2008 financial crisis.

June 2003: Struggling to revive the economy after a brief recession, the Fed cuts its benchmark rate to 1 percent, then regarded as the lowest viable level. Ben S. Bernanke, in his first stint at the Fed, presents a paper exploring supplemental strategies a central bank could use to stimulate the economy after pushing rates to the floor.

Mr. Bernanke presides over a Great Recession caused in large part by the collapse of an overheated home mortgage market. Both interest rates and inflation tumble to historic depths as the Fed struggles to revive the economy.

June 2006: The Fed, after raising interest rates at 17 consecutive meetings, beginning in 2004, ends its campaign to slow the economy and forestall inflation. Some economists now argue that the Fed should have moved more aggressively and that its slow and predictable increases helped to bolster the housing bubble. Mr. Bernanke arrives in time to preside over the final three rate increases.

December 2008: Starting in 2007, the Fed reduces interest rates as economic growth collapses. After the demise of Lehman Bros. brings the financial system to the brink of disaster, Mr. Bernanke enters uncharted territory, pushing interest rates nearly to zero. He also persuades colleagues to start buying bonds, a supplemental strategy to stimulate the economy that is popularly known as quantitative easing.

January 2012: The Fed formally adopts a 2 percent inflation target, although it now finds itself trying to raise inflation to that level rather than driving it down. The Fed is increasingly worried that sluggish inflation is restraining economic growth.

Ms. Yellen presses the Fed’s stimulus campaign, seeking to reduce unemployment and revive inflation, amid questions about what complete recovery will look like.

October 2014: The Fed concludes its last round of bond-buying after acquiring more than $4 trillion of Treasuries and mortgage securities. How well did it work? Opinions vary.

November 2015: Ms. Yellen signals the Fed is ready to start raising its benchmark interest rate. She says, however, that the Fed does not expect the rate to reach pre-crisis levels in the foreseeable future, citing both the weak condition of the domestic economy and the long-term decline in global interest rates.

Dec. 16, 2015: The Fed raises interest rates for the first time since the financial crisis. How the economy responds to the Fed’s actions will go a long way toward defining Ms. Yellen’s tenure.


Greenspan Shrugged

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Left page, photographs by Harry Benson right page, courtesy of Henry Jerome/Perseus Publishing.

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The annual White House Correspondents’ Dinner is a feast of sycophancy and pretended satire, and last April’s gathering was no exception. Only one real shaft was launched all evening, when the night’s designated jester, Jay Leno, jutted himself toward Hillary Clinton and inquired, “What’s it like being married to the most powerful man in the world? Let’s ask Andrea Mitchell.” Everybody laughed. Nobody missed the point. This country is in awe of a mousy, bespectacled accountant with enigmatic powers—America’s least-likely celebrity.

Alan Greenspan, chairman of the Federal Reserve and husband of the divine Andrea, is sometimes idly referred to as “the second most powerful man in America.” But he’s quietly approaching his fifth term of office. And in that capacity he probably does possess more power than any president. A nod from him about the interest rate and global markets quiver along every nerve and ganglion. And therefore, since most of foreign policy is now driven by economics, and most wars are fought largely by economic means, he disposes of more power than any 12 heads of government of any remotely comparable countries. He can’t on his own initiative reach for the thermonuclear button, but then, outside the realm of Hollywood, neither can the president. He doesn’t have to waste any time at ceremonial events. He is obliged to report to Congress only twice a year, at formal occasions where he is received with the deference that was once accorded the Emperor of Japan. Fantasies about the mystical capacities of Greenspan are legion: one of the many whole-cloth journalistic inventions by The New Republic’s Stephen Glass (before he was caught) concerned a Wall Street investment house which kept an empty office as a Greenspan “shrine,” complete with fetishes and relics and memorabilia. Putative brokers were quoted, saying that they actually prayed to Greenspan and used a software program known as “The Talmud of the Federal Reserve.” The article escaped exposure because, after all, it might have been true. And Greenspan has achieved name recognition of a kind. No less a person than the used-and-scorned Gennifer Flowers once told Larry King, “I think truly that credit should go to Alan Greenspan . . . this was already in place before Bill—the upswing of the economy.”

In the first presidential debate of the election just past, both candidates were asked what they would do in an economic or financial emergency. George Bush replied that “what I would do, first and foremost, is I would get in touch with the Federal Reserve chairman, Alan Greenspan.” Seeking to one-up him, Al Gore boasted of how he had already been in touch with Greenspan, on the Mexican peso crisis. It was generous of Bush in the circumstances: Alan Greenspan and Robert Rubin (until recently the Treasury secretary) have carried the Clinton-Gore economy, and (though he resented being exploited in this way without warning, and would not allow the tactic to be repeated) Greenspan himself was suddenly given a seat between Hillary Clinton and Tipper Gore for Clinton’s 1993 State of the Union address. The cameras found him looking like a talisman for Clintonomics. If he walked down the street, it wouldn’t surprise me to see sane citizens touching him for luck. Good times often make people more, not less, superstitious.

One way of defining the real and nonlegendary potency of the Federal Reserve is to call it “the banker’s bank.” As the ultimate lender, it can exert regulatory influence on the loans made by lesser institutions. Thus, when the Asian “tiger economies” went into a serial stall-out in the summer of 1997, Alan Greenspan was able to induce American lenders to extend credit, and thus to carry the wounded South Koreans and others across a shaky bridge to temporary recovery. Haunted by the Furies, the ancient Greeks would allude to them ingratiatingly as “the kindly ones,” in case they were listening. Confronted by the awesome strength of the Greenspan HQ, people refer with cozy familiarity to “the Fed.”

Ideologically speaking, the man who holds the keys to this machinery is too extreme to get himself elected to anything. His ostensible political and social convictions are miles to the right of any known center. Yet it is probable that he helped elect Jimmy Carter and practically certain that he helped elect Bill Clinton. In addition:

  • He was once investigated by the F.B.I. to determine if he was gay.
  • He supports an ideological cult group that proclaims its militant atheism, especially its contempt for Christianity.
  • His intellectual guru Ayn Rand was a proponent of a woman’s unconditional right to abortion.
  • He helped abolish the military draft.
  • He once took a large fee from a savings-and-loan baron who later did time in jail.

Some of the above accomplishments make one warm to him more, and some less. Probably the sweetest thing about the banker’s banker is his past as a jazz musician. Back in the 40s, he was a section player with Henry Jerome and His Orchestra, a combo which gamely made the transition from swing to bebop, Greenspan’s saxophone and clarinet supplying much of the tone. Another key member of the group was Leonard Garment, later to be Richard Nixon’s attorney at the time of Watergate his tastes lay more with the saxophone. It’s touching to think of these two leathery Washington veterans having got their start as boys in the band. (I learned this, and much besides, from an excellent new biography by Justin Martin, Greenspan: The Man Behind Money, published by Perseus.)

Greenspan didn’t look very jazzy the first time I met him. He looked as if he’d be the easiest man in the world to persuade, if you were selling the proposition that everything is a different shade of gray. He was standing all alone, while moodily ingesting a complicated canapé, at an A-list book party thrown for Strobe Talbott and Michael Beschloss at the Sheraton-Carlton in D.C. And I thought, Well, now’s my chance. I had always wanted to know whether he still admired the work of Ayn Rand. After all, the hero of one of her novels—Howard Roark in The Fountainhead—dynamites his own building rather than submit to the leveling pressure of lesser architects. And the hero of another—John Galt in Atlas Shrugged—organizes the rich and gifted to go on strike against an undeserving and servile society. Did these deep tides of passion still move the slight and stooped figure of Chairman Greenspan? Did he have moments, on slow days at the Federal Reserve building, of fantasizing its heavy columns and porticoes as they flew apart in shards? Did he ever think, Enough with this whining rabble! Today I—yes, I and my mighty interest rate—will make them beg for forgiveness!? I decided to move in before he could swallow.

He didn’t seem to mind the intrusion, or the question (which I phrased more guardedly than that). “Not only was I a strong supporter of Ayn Rand,” he told me, “but I was married to the best friend of Barbara Branden, wife of Nathaniel. You could say that I was of the inner circle of the group.” Quitting the past tense, he added, “And I wouldn’t change anything. I still think she was right, and I have learned a great deal from her.”

I was enough of a Rand buff to recognize the key name here. Nathaniel Blumenthal and Barbara Weidman were two Canadians. (For some reason, 9 out of 10 of the “objectivists” I have met are from Winnipeg.) They fell for each other, but they fell for Miss Rand even more, so much so that when they married they adopted the family name Branden. Nathaniel, who is now quite a successful personal-growth merchant in Los Angeles, once told me that the name is an anagram for “Ben-Rand” (as in “son of” ). This gives you an idea of how much loyalty was expected by the charismatic lady who formed the center of the circle, or “the Collective,” as it was counterintuitively called. Barbara Branden’s best chum from Winnipeg was named Joan Mitchell, and it was she who became the first Mrs. Greenspan after meeting him on a blind date. The couple parted after just 10 months true to the bond of the Collective, Ms. Mitchell later wed Nathaniel Branden’s cousin. It was also the first Mrs. Greenspan who received a visit from the F.B.I. 20 years later, when Greenspan was nominated to chair Nixon’s Council of Economic Advisors. Just the facts, ma’am, about your ex . . . Married only 10 months and a bachelor ever since . . . ? She was able to reassure the worried gumshoes that his economic orthodoxy had its sexual counterpart. (Now that Greenspan has married another Ms. Mitchell, the thorny problem of Gays in the Federal Reserve has been laid to rest.)

Illicit sex of another sort was to play a role in nudging Greenspan toward Washington. In May 1968, while the rest of the world watched revolution in Paris, the Rand Collective exploded like a Howard Roark building site. Nathaniel Branden, it turned out, had been having a torrential affair with Rand, of which both their spouses knew and approved. But then Rand discovered that Branden—“Ben-Rand” himself—was having yet another sizzling relationship with a much younger woman. In an epic fury, she covered Branden’s face with weals, excommunicated him from the cult, and put a 20-year curse on his penis. (The scene is rendered to best effect in the Showtime movie The Passion of Ayn Rand, with the grande dame played by Helen Mirren.) Poor Greenspan, who hadn’t been part of this votive and orgasmic side of the club’s activity, went off into private practice and then, introduced by his old swing-and-bop partner Len Garment, to Nixon’s Washington. His greatest achievement in that mediocre period was to serve on the Gates Commission on the military draft. With Milton Friedman, he persuaded the other members that the draft was an affront to individual liberty, as well as a form of taxation without representation, and should be scrapped and replaced by an all-volunteer military. Nixon accepted the recommendation. Thus two free-market libertarians completed the work of the card burners and the New Left, and thus an ardent foe of state intervention began his march toward the job of regulator in chief.

In the unpropitious month of July 1974, Nixon nominated Greenspan to be chairman of the president’s Council of Economic Advisors. He survived this disgrace and saw his nomination carried to term by Gerald Ford. Those were the days when the word “stagflation” had a totemic character. Faced with an election challenge from the peanut fields of Georgia, Ford took Greenspan’s advice and avoided the popular solution of tax cuts and other booster shots. He was told that this would lead to bad economic news before the election, but brighter tidings after it. He lost. He still maintains that he lost because he did the brave, manly, principled thing (though I think the Nixon pardon may have had something to do with it). Greenspan went back to private practice on Wall Street.

It had been Nathaniel Branden, in his days as Rand’s chief disciple, who recruited Greenspan to the cause of economic fundamentalism and set him to work on her magazine, The Objectivist. Some initial sales resistance had to be overcome on both sides Greenspan came from a New Deal-New York Jewish background, while Rand, who liked her men husky and domineering, complained that the potential recruit more closely resembled, not to mince words, “an undertaker.” Funereal as he looked (and still looks), there was still some jazz in there somewhere, and he was able to write about the dismal questions of economics in an intelligible way. With magnificent condescension, Rand included three Greenspan contributions in her collection of essays Capitalism: The Unknown Ideal, though without crediting him on the cover. If you look up this volume today, you can see the future keeper of our financial destiny as he makes the case for the gold standard, while shredding the case for anti-trust and consumer-protection laws. Here’s an excerpt from his argument about the latter, in a piece grandly entitled “The Assault on Integrity”:

It is precisely the “greed” of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer.… Reputation, in an unregulated economy, is thus a major competitive tool. Builders who have acquired a reputation for top quality construction take the market away from their less scrupulous or less conscientious competitors. The most reputable securities dealers get the bulk of the commission business.

I reread that in the week that Congress held hearings on Firestone tires, synonym for quality. Not content with the line taken by Adam Smith, who neutrally opined that it was “not from the benevolence” of the businessman, but from his self-interest, that we enjoyed our range of choices, the objectivists insisted that capitalism had to be seen as morally superior also. This is why Alan Greenspan’s most salient public and private fiasco is so significant.

In 1985 he was paid tens of thousands of dollars by Charles Keating, of Lincoln Savings & Loan in Irvine, California. The payment was in exchange for abject cheerleading in which Greenspan testified to the health and probity of Keating’s enterprise, describing it to California thrift regulators as “seasoned and expert,” having “effectively restored the association to a vibrant and healthy state, with a strong net worth position, largely through the expert selection of sound and profitable direct investments.” Even at that moment, Keating was hopelessly overextended with unsecured junk bonds, and was soon desperately heaping soft-money donations into senatorial laps. One of his memos to bond salesmen read like an injunction from John Galt himself. “Remember,” it said, “the weak, meek and ignorant are always good targets.” But in April 1989, having had a good run in a deregulated market for suckers, he filed for bankruptcy. The money vanished like fairy gold, and the taxpayer had to eat a $3.4 billion bill.

By that time, Greenspan had been confirmed as chairman of the Federal Reserve (though he wasn’t asked any serious Keating questions during his Senate confirmation). And, as Justin Martin points out, he had to deal with the “credit crunch” provoked in part by the implosion of the thrift industry. His bankerly response was to decline a lowering of the interest rate, thereby infuriating President Bush’s Treasury Department, which for a mixture of economic and political motives wanted it to come down. The subsequent recession ended when the rate was belatedly eased many are the Republicans in today’s Washington who blame the Clinton presidency on Alan Greenspan. “I re-appointed him, and he disappointed me,” said Bush coldly. An irony of history: the Bill Clinton who took credit for the long boom of the 1990s was the man who dodged the draft that Greenspan helped to end, and who profited from an upturn that Greenspan had fatally postponed. So should our current golden age be indirectly credited to the goldbug Greenspan himself, or to the tempestuous libido of Ayn Rand, or perhaps to the once jailed Charles Keating?

Greenspan’s brush with amoral or immoral capitalism in the Keating case may also have caused him to make his most celebrated, not to say notorious, observation. At a reception held in his honor by the American Enterprise Institute on December 5, 1996, he delivered a speech which, suddenly breaking with the traditions of platitude, invoked the recent implosion of the economy of Japan. Inflated stocks, overvalued real estate, bubble banks—the S&L-nightmare syndrome all over again, though Greenspan didn’t choose to put it like that. He put it like this: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?”

If Greenspan looked like an undertaker when he met Ayn Rand, he looked even more like one on the morning after the words “irrational exuberance” had been bounced off a few satellites. The market on Wall Street had closed, but the Dow still fell 145 points when it reopened, the exchanges from Sydney to London having taken a pasting in the meantime.

In his spirited and brilliant book, Devil Take the Hindmost: A History of Financial Speculation (which has some harsh words for Green-span’s stewardship), the British author Edward Chancellor compares all past financial “bubbles” to superstitions and acts of faith. But the striking thing about objectivism, and the thing that distinguishes it from the mainstream of American conservatism, is exactly its disgust with religion. Belief in God is equated with mental slavery. Ayn Rand wrote two especially vivid attacks on the Pope, in one of which she said that “abortion is a moral right—which should be left to the sole discretion of the woman involved morally, nothing other than her wish in the matter is to be considered.” In the second essay, “Requiem for Man,” she wrote off Pope Paul VI’s encyclical on economics, concluding that “the Catholic Church is deserting Western civilization and calling upon the barbarian hordes to devour the achievements of man’s mind.” The author of these words was invited to the Cabinet Room for Greenspan’s first swearing-in, the nearest she ever came to the seat of pure power. (She died on March 6, 1982— Greenspan’s 56th birthday.)

Atlas Shrugged is being developed for TV release next year by Al Ruddy (the producer of The Godfather), and I daresay Alan Greenspan and Andrea Mitchell will stay in to see how the small screen assimilates those 1,168 torrid and voluptuous pages. But more and more I get the impression that Washington has leached the Superman tendencies out of our boy. The turf here is consensual turf the job of the Fed is to do banal and almost social-democratic things, like helping bail out those wheezing Asian economies that Ms. Rand would have so much despised for their pathetic weakness. Tenderness and concern are the fashions. It’s impossible to imagine Greenspan showing his objectivist fangs, as he did at a White House– sponsored economic summit in 1974, telling an incensed union leader that, “percentage-wise,” it was Wall Street brokers who suffered the most from inflation. That was an Atlas-size flub, not repeated, and succeeded by public appearances on the arm of Barbara Walters. The last time I saw him, in the late spring of this year, he was hosting a lovely little party in Washington at his beautiful Palisades home—which actually belongs to Andrea Mitchell. The evening was in honor of the latest Washington novel, Face-Time, by Erik Tarloff his wife, Laura D’Andrea Tyson, was herself a successor of Greenspan’s in the job of chairman of the Council of Economic Advisors. Both were Clinton colleagues and likely stars in any Gore firmament. The guest list was evenhanded to a fault, if not indeed tilted in favor of tasteful liberalism. By chance, earlier that day I’d recorded a BBC talk on Atlas Shrugged, for a series on popular best-sellers, and mentioned that fact as I was saying good-bye to my hosts. The chairman’s face kindled briefly he expressed fond interest I suddenly wished I hadn’t been going, but my ride was there, and so I went off and out, into the warm bipartisan night that now encloses us all.


Alan Greenspan - History

The other day I told a spendthrift friend that I had to deliver a short address on the history of money. He responded, "I understand the history of money. When I get some, it's soon history." Fortunately, not all market participants are as spendthrift as my friend. Savers have been in sufficient abundance since the beginning of the Industrial Revolution to enable investment to further material well-being. Money, as a store of value, was an early facilitator of savings and one of the great inventions of mankind. Saving and investment is very difficult in a barter economy.

The history of money is the history of civilization or, more exactly, of some important civilizing values. Its form at any particular period of history reflects the degree of confidence, or the degree of trust, that market participants have in the institutions that govern every market system, whether centrally planned or free.

To accept money in exchange for goods and services requires a trust that the money will be accepted by another purveyor of goods and services. In earlier generations that trust adhered to the intrinsic value of gold, silver, or any other commodity that had general acceptability. Historians, digging deep into the earliest evidence of human practice, link such commodities' broad acceptability to peoples' desire for ostentatious gold and silver ornaments.

Many millennia later, in one of the remarkable advances in financial history, the bank note emerged as a medium of exchange. It had no intrinsic value. It was rather a promise to pay, on demand, a certain quantity of gold or other valued commodity. The bank note's value rested on trust in the willingness and ability of the bank note issuer to meet that promise. Reputation for trustworthiness, accordingly, became an economic value to banks--the early issuers of private paper currency.

They competed for reputation by advertising the amount of capital they had to back up their promises to pay in gold. Those banks that proved trustworthy were able to broadly issue bank notes, along with demand deposits, that is, zero interest rate liabilities. The profit that accrued from investing the proceeds at interest was capitalized in the banks' market value. In the mid-nineteenth century, equity capital/asset ratios were often several multiples of today's ratios.

In the twentieth century, bank reputation receded in importance and capital ratios decreased as government programs, especially the discount window and deposit insurance, provided support for bank promises to pay. And, at the base of the financial system, with the abandonment of gold convertibility in the 1930s, legal tender became backed--if that is the proper term--by the fiat of the state.

The value of fiat money can be inferred only from the values of the present and future goods and services it can command. And that, in turn, has largely rested on the quantity of fiat money created relative to demand. The early history of the post-Bretton Woods system of generalized fiat money was plagued, as we all remember, by excess money issuance and the resultant inflationary instability.

Central bankers' success, however, in containing inflation during the past two decades raises hopes that fiat money can be managed in a responsible way. This has been the case in the United States, and the dollar, despite many challenges to its status, remains the principal international currency.

If the evident recent success of fiat money regimes falters, we may have to go back to seashells or oxen as our medium of exchange. In that unlikely event, I trust, the discount window of the Federal Reserve Bank of New York will have an adequate inventory of oxen.


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