On the way in from doing a CNBC spot early (early) this morning I heard a Cato Institute commentator on NPR suggest that critics shouldn’t be blaming ex- Fed chair Alan Greenspan for inflating a bubble. Better, he argued, would be to blame Wall Street itself, which should have anticipated the real estate bubble, credit crisis, etc.
That is awfully naive. Because not only did Wall Street know there was a bubble, it embraced it, the same way it did the Nasdaq bubble of the late ’90s. It did? You bet — it had to. Shorting the bubble would have been disastrous; avoiding the real estate sector would have had your results trail your competitors disastrously. Creating an environment where financial services companies had to take big risks to maintain parity, and then blaming the banks for doing what the had to do to pacify shareholders, is just plain silly.