Why all the blame on Greenspan?

I don’t know finance that much, but I can’t see why putting all the blame on Greenspan for the credit crunch problem and its subsequent aftermath.

In a common sense nut shell, I view the financial tsunami was caused by the followings:

• Mr. Greenspan's neglect on the regulatory issue on subprime lending -- Fed's responsibility on supervising banks and enforcing and interpreting consumer-protection laws such as the Home Ownership and Equity Protection Act. (source: His Legacy Tarnished, Greenspan Goes on Defensive)
• Prolonged low mortgage interest rate, correlated with the low Fed rate from 03-05.
  
• Risky and excessive Subprime lending(Subprime lending institution policies)
• The global demand of the asset ( or subprime mortgage secularization) secularization, a financial engineered product with high risk.
• Mistakes on speculation( or a failure of risk adjusted calculations) of the mortgage backed securities. (world wide phenomenon, HSBC, a very conservative bank, acquired Household, eg. )
• I Bank incentive structure (High returns on high risk moves, No/minimal loss on negative return—extreme case of the problem of Principle/Agency problem.)
• Holes in the regulated securities market worldwide and were exploited.

What Greenspan responsible were the Fed rate (which also correlates to the mortgage rate for US housing) and the overseeing the US mortgage policy, they might constitute necessary conditions for the consequence, but they were not enough to be sufficient conditions.

Also, the way he controlled the Fed rate was, in part, maneuvers to achieve the most prosperous era for the US economy from nineties and also to let US economy survived after the internet bubbles and 9-11.

Two important points to be noted:

The financial engineered products outpaced regulations.

The tension between regulated and deregulated market ideology.

But Greenspan, an easy scapegoat?

A failed police, maybe...

In all of bullet points above, almost all of it are centralized into one thing, one innate nature of human – greed.

An on the other hand, the regulation on this human nature.

It is too convenient to put the blame on a figure head (or the police). Like if Greenspan was not in position. Everything would go nicely. Every holes can be caught.

By this, I am reminded by the exchange of open letters between Joseph Brodsky and Vaclav Havel.

Let me rewrite a paragraph from the letter by Brodsky to Havel,

‘It is here, dear friend, that I think your blame on Greenspan fails you. For neither the Fed rate nor its correlated US mortgage rate amounts to an sufficient cause of the credit crunch, since the blame on Greenspan would helped, helps, and will for quite some time help the finance world to externalize evil. And not the finance world only. To quite a few of us who also share this nature--greed, and especially those who profited from it, the presence of the blame on Greenspan was a source of considerable moral comfort. For one who points and find out the cause of the financial crisis almost automatically perceives oneself as not responsible and skips self-analysis. So perhaps it's time—for us and for the world at large, works in finance or not—to scrub the term fed rate from sufficient conditions of the crisis, so one can recognize that the lesson for what it was and is: collective responsibility.'

Let Greenspan be responsible what he is responsible and so do we.

The original piece,

‘It is here, Mr. President, that I think your metaphor fails you. For neither the Communist nor the post-Communist nightmare amounts to an inconvenience, since it helped, helps, and will for quite some time help the democratic world to externalize evil. And not the democratic world only. To quite a few of us who lived in that nightmare, and especially those who fought it, its presence was a source of considerable moral comfort. For one who fights or resists evil almost automatically perceives oneself as good and skips self-analysis. So perhaps it's time—for us and for the world at large, democratic or not—to scrub the term communism from the human reality of Eastern Europe so one can recognize that reality for what it was and is: a mirror。’—by Joseph Brodsky

By the way, I am very interested to know what would Milton Friedman say if he is alive today.

Either way, I think his answer would be pretty grim.