I was a teenage Gramlich

By JIM NEWELL  |  April 4, 2012

But Gramlich had a feeling even then that while playing around with mortgages might prove stimulative in the short term, such measures would come at the cost of a substantial increase in household leverage; loan-to-value ratio standards would worsen; balance sheets would "restructure" mostly by drowning underwater. He also sensed, with painful acuity, that very little of this would have a healthy long-term effect on labor markets, economic security, or wealth creation.

In the real-life Fed, Gramlich had brought some of his subprime concerns to Alan Greenspan around 2000. He urged the chairman to mobilize the Fed's regulatory apparatus to use, according to a 2007 Wall Street Journal article, "its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies." This is something he said to Alan Greenspan, a guy who doesn't even think fraud should be illegal, as former Commodity Futures Trading Commission Chair Brooksley Born — a Clinton-era derivatives regulator whom Greenspan silenced — remembers him saying over a lunch date. So it was hardly a shock when Greenspan dismissed Gramlich's concerns. And Gramlich, not willing to push further against Greenspan's final word, decided not to bring his recommendations to the Fed staff.

This revelation came out shortly before Gramlich's death from leukemia in the summer of 2007, just as the subprime crisis was beginning to destroy the entire global economy. But three years later, when Greenspan was testifying before the Financial Crisis Inquiry Commission, the old man was polite enough to, let's say, "commemorate" Gramlich's 2000 warnings. He recommended that the panel examine the causes of the financial crisis that Gramlich had "chosen not to bring" to the Fed's board, according to a New York Times report on the hearing titled "Greenspan Criticized for Characterization of Colleague." There are plenty of rival episodes to choose from, but it's hard to find a more illuminating example of Alan Greenspan's enduring pettiness than this. Long after the fact, he tried to depict himself as the reasonable adult by recommending the Fed look into Gramlich's regulatory ideas, while also slyly insinuating that his dead colleague was the bad actor in this drama because he never brought those recommendations to the Fed staff.

We neophyte high schoolers could never hope to aspire to this level of Machiavellian chicanery — it's no doubt covered in advanced seminars in macroeconomic policy, or perhaps in the Objectivist texts that Greenspan has lovingly studied throughout his life. On another level, though, Greenspan's harried blaming-the-dead-guy line of rhetorical defense underlined just how close the worlds of high school and macroeconomic policymaking are, at least in behavioral terms. The only difference in this case would be that a high-school-age scofflaw would be more likely to invent a dead relative to blow off a homework assignment than to attribute a major policy oversight to a dead colleague.

I should mention that, while Gramlich is dead, the maestro, Alan Greenspan, can still regularly be heard spouting unquestionable economic wisdom during hushed, reverentially staged appearances on Meet the Press with David Gregory, the prince of Washington press quislings.


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