In that this article absolves Greenspan, it is indeed counterfactual nonsense.

In its diagnosis of impotent regulation encouraged by corrupt and feckless legislators serving their donors, it is factual.

Back in 2004-2006, anybody who wanted to see what was coming would see it. I was renting a small house in a high end community (Newton MA) in that era. A neighbor who owned her little house next door (3br, 1.5 baths) said she was going to put in on the market for 1.2M. We agreed that she better sell it quickly, while the mortgage bubble was still expanding, if she wanted that kind of money for it.

Neither of us are economists or lawyers. People with access to lots of information could surely see the problems, if they hadn't had their heads in, well, the dark.

Fellow MA resident here. Grew up in Medfield, living in Natick, frequently visit Newton. The wealthier parts of these communities were relatively isolated from the bubble, and houses of that size are still selling for that much here today—sometimes a lot more, depending on the neighborhood. I don’t really see the point you’re trying to make.

I think the point OP is making is that incomes could not support that level of pricing during 2004-2006, only reckless levels of debts.

Now that 12-14 years have passed, incomes - and inflation - have risen and those same prices appear more reasonable. Accounting solely for inflation, $1.2 million today was worth $970,300 in 2006 and $901,900 in 2004.

It seems like a bad example, though. Most of the neighborhoods around here with that sort of pricing for that size house didn’t drop much, if any, during the real estate crash. It felt like a very distant problem here.

I lived in a similarly-priced neighborhood less than 30 minutes away during that time period. Houses continued to sell normally throughout, though sometimes they were on the market a little longer than they would’ve been previously. Prices continued to go up.

That's on purpose. The point of the "quantitative easing" that's been happening is two pronged. The first is to let the largest banks feign solvency. The second is to reinflate asset prices to rebuild bank balance sheets.

Everything I’ve read on the subject supports that Greenspan played a significant role in creating the crash of 2008 and unfortunately his disciples have been running the show since.

We are in a debt fueled rally that will crash and we might be out of ammo to keep the system going.

What have we learned? What has changed? The answer to both seems to be: not much.

I'm sure it can get much worse once the whole world's monetary fate is under the auspices of centralized monetary unions.

Without the influence of competitive forces, the Fed will remain.

When competitive forces necessitated 'survival of the fittest,' congress took over control of the money supply. This was demanded of the US government during the Civil War when there was an actual threat of: 'we will die if we don't act in the best interests of The Union.'

Perhaps the only thing more exasperating than the Fed's transfer of wealth from money holders to the Wall St economy (and minimally, the US govt) is the weasly arguments used to justify it: "Creating 4 trillion dollars and helicoptering it to Wall St is fine because inflation didn't rise, so therefore the money was free thanks to our clever understanding of economics." In other words, due to magic, the Fed creates value out of thin air... Oh but they can only share it with Wall St because otherwise they will crash the US economy.

There’s the old saw about the “repeal” of good ol’ Glass-Steagall again. The change in 1999 merely did away with restrictions on commercial banks and investment banks being controlled by the same holding company. There were enormous moral-hazard problems for all banks, and that was induced by what were then only widely assumed bailout guarantees.

I’m just a random guy on the Internet. Maybe you’ll believe WaPo[0].

But why let facts get in the way of a good screenplay?

Facts such as that Bear Stearns, Lehman Brothers and Merrill Lynch — three institutions at the heart of the crisis — were pure investment banks that had never crossed the old line into commercial banking. The same goes for Goldman Sachs …

The infamous AIG? An insurance firm. New Century Financial? A real estate investment trust. No Glass-Steagall there.

Two of the biggest banks that went under, Wachovia and Washington Mutual, got into trouble the old-fashioned way – largely by making risky loans to homeowners. Bank of America nearly met the same fate, not because it had bought an investment bank but because it had bought Countrywide Financial, a vanilla-variety mortgage lender.

[0]: https://www.washingtonpost.com/lets-shatter-the-myth-on-glas...

Yes. There's also the fact that institutions that would have violated Glass-Steagall, like JP Morgan Chase and USAA, came through the financial crisis better than pure investment banks.

And one of the tactics to help stop the crisis was to allow remaing investment banks to convert to bank holding companies that accept deposits--which would have also violated Glass-Steagall.

And that Europe didn't have a regulation like Glass-Steagall, yet the crisis didn't start in Europe, it started in the U.S.

Part of what Glass-Steagall prevented was banks from dealing/investing/underwriting in non-governmental securities or affiliating with those who do[1]. Seems to me that this would have gone a long way to preventing a lot of the insane repackaging of the toxic garbage alongside the more reasonable debt. Am I incorrect in believing that the securitization of mortgage debt and related instruments like default swaps and other derivatives could not have occurred with that firewall in place? Granted, there were still the problems that Fannie Mae and Freddie Mac created (not from their initial purpose, but rather what they morphed into) but it seems the problem would have remained much more contained, more obvious earlier, and with less leverage.

[1] https://en.wikipedia.org/wiki/Glass-Steagall_legislation

The author states: "In sum, blaming the financial crisis on the naivete of leading policymakers such as Greenspan and Summers is unfair and unfounded." That might be true: it might not have been naiveté, but wilful blindness.

The article continues: "The Greenspan Fed also tried to force more capital into the banks it supervised, but it soon realized that this would drive risk-taking into various “shadow banks” that lay outside its authority [...]"

Funny how the "if we regulate it, it will just move underground, so we might as well allow it" line is applied to financial misdeeds and guns (in the US), but not to prostitution or drugs (at least in the past).

Fully agreed that Ayn-Rand-acolyte Greenspan bears some responsibility for the meltdown. Maybe the author of this article (and his biographer) got too close to his subject.

However, the core lesson from the article rings true: The problem was not that people didn't know. It was that they either did not want to or did not manage to do something about it, because many forces conspired to keep the status quo.

The article is correct when it says that Greenspan did not believe in totally rational or efficient markets.

But Greenspan clearly stated that he believed that laissez-faire capitalism was the optimal option for democratic society even when it causes some Irrational exuberance.

Greenspan was Objectivist who had close relationship with Ayn Rand until her death. Allowing market irrationality to select who wins and loses was not against his political ideals. He believed that better are people being taken advantage by the masses in democratic society.

Greenspan politicized his office and always advocated laissez-faire. He was acting very rationally based on his ideology.

It has been said that Americans speak the language of Jefferson but live in the system that Hamilton advocated.

Likewise, Greenspan while at the Fed may have occasionally mouthed vaguely Objectivist sentiments that echoed his earlier association with Rand, but he was, after all, head of a quasigovernmental body that creates money out of thin air. By this point in his life, Greenspan’s ideology was living it up as a member of the D.C. elite.

To see him advocating laissez-faire, read his essay “Gold and Economic Freedom”[0] — that comes off nothing like Chairman Greenspan.

[0]: https://www.constitution.org/mon/greenspan_gold.txt

Objectivists were not uniformly against fractional reserve banking.

At least objectivists had the idea that laissez-faire benefits the few "the new elite", those who deserve and did not have the weird idea that laissez-faire lifts all up.

There is a difference in kind between fractional-reserve banking and propping up an entire system of banks with a central bank deemed the lender of last resort and that has the special privilege of issuing newly created fiat money and credit.

I’m no Objectivist, so what do you mean by “the weird idea that laissez-fairy lifts all up”?

Nice to mention the link to Objectivism and Ayn Rand. I can highly recommend Adam Curtis's 'All Watched over Machines of Loving Grace' docu [1], which goes into that relationship and has a great scene of pong!

[1] https://en.wikipedia.org/wiki/All_Watched_Over_by_Machines_o...

It is more than counterfactual nonsense. It's a PR piece by a well connected institution on one of the most well connected people in the world.