Another Fed gift to Wall Street

Pure as the newly fallen snow (job)

Turning back to the father of that "nation," I found it ironic that on the very day the Fed apparently bowed to Mr. Market and created this "do-over," Greenspan penned an Op-Ed for The Wall Street Journal titled "The Roots of the Mortgage Crisis" (registration required).

This might well have been subtitled "Don't Blame Me," as he'd have you believe that it was the collapse of communism that created the mortgage crisis. However, he does get a couple of points correct: "The root of the crisis, as I see it, lies back in the aftermath of the Cold War, when the economic rule of the Soviet Bloc was exposed with the fall of the Berlin Wall."

He is right. That is approximately when the crisis began, but that's because it was close to the beginning of his term at the Fed, which started in mid-1987. It's the mistakes made during his tenure that created these problems.

• Talk back: Do you expect a recession?

As to his comment that "I have reluctantly concluded that bubbles cannot be safely defused by monetary policy," that, too, is right. There is no safe defusing of bubbles. There is only the prevention of bubbles. The attempt to safely defuse or to create soft landings only creates more problems, as we have seen with this housing bubble that followed the equity bubble.

Greenspan does acknowledge that perhaps the Fed held rates too low, too long. But then he suggests he was right for doing so because "the potential threat of corrosive deflation in 2003 was real." That nonsense requires no rebuttal. Lastly, he claimed, "The impact on demand for homes financed with ARMs (adjustable-rate mortgages) was not major." I guess that depends on what the definition of "not" is.

For those who'd care to read an admittedly biased critique of Greenspan's career, the book I have written on that subject will be out in January. It will be interesting to see how the public responds to my accounting of Greenspan's actions compared with his glowing self-analysis.

Shepherd's Counseling Services

I'd like to turn to a subject near and dear to my heart: Shepherd's Counseling Services, my favorite charity. It counsels adult survivors of childhood sexual abuse. It's not a pleasant topic, and one can only imagine how horrible and life-ruining it could be to have experienced something like that. (For anyone who'd like to see a movie on the subject, I suggest "Mystic River.")

Folks have a hard time getting past childhood sexual abuse. Shepherd's helps them do just that. This is not a large organization with layers of bureaucracy. It's a place where an unusually high percentage of contributions gets put to work.

• Video: Fed defends its liquidity plan

For any of you feeling pretty good about how the year went and inclined to help people who could certainly use it, I would urge you to give Shepherd's a consideration. Any amount is appreciated. I have told them that a friend -- also a fund manager -- and I will each match all contributions that readers of the Contrarian Chronicles make.

Now to end by saying I hope everyone has a merry Christmas and a happy new year. I'll see you when the Contrarian Chronicles returns Jan. 14.

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