Dear John: You explained in a recent column how Alan Greenspan encouraged what became the current subprime mortgage nightmare. The real culprits, you conclude, were the massive hikes in oil/heating and gasoline prices, which you will recall were engineered by Goldman Sachs hiking energy allocation in its models. This was all engineered prior to Henry Paulson being named Secretary of U.S. Treasury. True? K.C.
Dear K.C.: This is a classic example of how someone can string together a bunch of inter-related but irrelevant facts and put them into sentences that sound believable but are misleading.
OK, where do I start?
As you probably know, Greenspan’s book “Age of Turbulence” just came out and during interviews for the book he blames everyone but himself for the nation’s current economic problems.
But it was Greenspan as Fed chairman – along with many others – who encouraged people to take out adjustable rate mortgages instead of those that guaranteed low rates for 30 years. And worse, Greenspan did it just as he was about to raise interest rates.
Back to some of your main points.
First, I said that interest rates remained too low for too long and that caused people to buy houses they really couldn’t afford. The question is: why are they now having trouble paying their mortgage?
How about the cost of energy?
I can’t prove it and nobody else can either. But it makes as much sense as blaming interest rates for the problem. Now, let’s jump to the cause of oil price increases.
There may be people blaming Goldman Sachs, as you say, but the real problem is that too many people are speculating in energy futures.
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