From His Lips to My Ears

I had heard rumor to the effect. I was fortunate enough last summer to be part of a small group tour of the Fed's FOMC meeting room. My colleagues and I sat at what we perceived to be the epicenter of power, where mighty titans move the world's markets isolated from the partisan currents outside the many windows. We were treated to an engaging discussion with a well placed economist in the Fed chain who had participated in many of the meetings at the wing of the Chairman himself. The Fed had recently gone through a leadership change and this gentleman had served many years under Alan Greenspan and was now learning the style differences of his new boss Ben Bernanke. He was surprisingly frank and willing to admit mistakes. One of the issues we raised was the length of time the Fed had kept interest rates suppressed in the early part of the decade; a move that many now think contributed to the housing flare up. His response was troubling because he declared that Congress never would have stood for a rate increase and was actually suggesting more deregulation and easier credit. My understanding has always been that a Central Bank is independent for the sole reason that politics and rational economic policy are often in conflict. We asked him to respond but the conversation didn't continue much longer in that direction. Last night, CNBC debuted a new documentary on the housing debacle called "House of Cards". To my surprise, one of the key interviews was with Alan Greenspan himself. The interviewer posed the same line of questions to him that we had pursued last summer. Without hesitation, he reiterated the identical position. Congress would have been outraged by a rate increase and we never would have gotten it through, were his remarks in paraphrase. As a student of this stuff, I have to say my mouth dropped open. I don't have much hope for an economy guided by the partisan sycophants in Washington. The Central Bank must regain authority and fed policy must lift itself above the political fray...or we are doomed. Clicking the title of this post will take you to a segment of the interview with Greenspan.