I'm going to have a very interesting debate about him. Great graphic, really good, great graphic. Were Greenspan's policies success or failure? I'm going to introduce the alumni board judges and Nathan Nichols, and Nathan will then introduce the invaders. Our judges today were very happy to have him here, Barbara Sparks. There's this lack of one of their favorite activities that they do as alumni board members. It's judged by undergraduates and we're always very impressed. Nathan Nichols is the organizer of the debate. Nathan, come on up and tell everybody who the debaters are. So now that we've come to the site, we're going to end at 5.30 a little bit after. There will be food downstairs while we await the decision of the judges. So join us if you'd like. Take away Nathan. Welcome and thank you again for coming to the fourth annual undergraduate debate. I just want to take a minute to thank Diane for setting this up. She's put a lot of time and effort into this project. I mean so much to the undergraduates for all of your time and effort for four years doing this. I think it's better and better every year, so just thank you. Now, today the title of the debate is Market Failure 2008, The Greenspan. Now several months ago, the media began to take a second look at how Greenspan's history has chairman of the press. The same people who praised him a year ago now think his actions as irresponsible. Now the question we're trying to answer this afternoon is this. Where on Greenspan's policies during his time as federal reserve chairman, the direct cause of the market failure last fall? This is not a debate about what happened in 2008, but rather could Greenspan have acted differently given information that he knew at the time. That's in the 80s and the 90s and the 2000s. Now depending on Greenspan, we have Soraya Cagoda, he's a junior economic student. We have Martin Thompson, who's also a junior. We have Jacob Gordon, who's a graduating senior this year. And with Joshua Socombe, who's a sophomore and he was assistant researcher today. Now on proposing Greenspan's policies, we have presenters Jonathan Santiago, who's a junior. And Ian Menare, who's a graduating senior this year. And Harrison Serles, a freshman. With Robert Van Asen, as an assistant researcher. Now please welcome the person at the beginning of Greenspan. Hi everyone. Okay. Now before I start, I would like to talk a little bit about Greenspan. Alan Greenspan. Now who is Alan Greenspan? Well, he was widely viewed as the most successful chairman in the Fed's 92 year history. He presided over an era of low inflation rates, low unemployment and the longest economic expansion in the U.S. history, with a decade of uninterrupted growth from March 1991 to March 2001. According to a former Fed board member, Lyle Grandley, he says that he was the first economist in the U.S. to perceive what was happening. Now during Greenspan's 18 and a half years in office, there were only two recessions. The first was in 1990 to 1991, which was during an oil price spike after Iraq invaded Kuwait. The second was in 2001, during the aftermath of a steep plunge in stock prices in the previous year. Both of these were only mild downturns, and the only lasted three months each. Now, if you look at that and compare it to the 18 years before Greenspan took over, the country experienced four severe downturns. Now, if you compare these together, you can see that during Greenspan's term, the country has done fairly well. Inflation rates in 1979 were as high as 13.3 percent. This was during the August term. This was during a decade of oil shots with an average of 8.4 percent. Inflation was at 3.4 percent in 2005, near a year before Greenspan's term ended. Even though the country was hit by another oil surge, that pushed gasoline prices of $3 per gallon. Inflation rates were fairly low. And this is a chart just showing the different prices of oil during different periods and different years, from a little bit before 1976 to 2012. Now, Greenspan says that he was merely building up upon inflation gains made by Walker. He credits facets such as globalization and deregulation of US industries for setting the stage for the country's prosperity. He was faulted for failing to restrain the high-climbing stock markets in 1996. I'm sorry, he was faulted for failing to restrain the high-climbing stock markets. And in 1996, he wondered whether the investors could be in the grip of irrational exuberance, but prices kept climbing. When the bubble burst, he moved to contain the damage by lowering interest rates. Now, everyone knows that the fake-and-drive interest rates lowered by pumping more money into the economy. This does not follow, however, that interest rates were sold. This doesn't follow that that's why interest rates were so low in the early 2000s. Other factors affected interest rates as well. For example, a sudden increase in savings would drive down interest rates. Such a shift did occur according to Greenspan because there was a surge in savings from other countries. Although he mainly names, he only names China, some of the Middle Eastern oil-producing countries were also responsible for much of these new savings. Now, if you ship the supply cart to the right, the price falls. And in this case, the price of savings and lending is the interest rate. Because of this, savings rate was negative for two years. How do we know that it was an increase in savings that an increase in the money supply that caused interest rates to fall? Well, look at the money supply. The annual growth rate of the monetary base, the magnitude of which the Fed has the most control, fell from 10% in 2001 to 5% in 2006. Furthermore, nearly all of the growth in the monetary base went into the currency, went into currency, an increasing proportion of which is held abroad. Now, Greenspan's argument defending his policies are two falls. The first one is that the Fed controls overnight interest rates, but not long-term interest rates. And the whole mortgage rates driven by them. The second is that a global excess of savings was the presumptive cause of the worldwide decline in long-term rates. Furthermore, if the Fed was the cause of all this, why was the housing bubble worldwide? Do Greenspan's critics seriously think that the Fed was responsible for high housing prices in, let's say, Spain? Well, Greenspan states that it was a failure to properly price such risky assets that precipitated in this crisis. Thank you very much. And I would like to welcome my teammate, Martin. Thank you, Swar. It is the government, not Alan Greenspan, that is responsible for today's economic downturn. The chairman of the Federal Reserve is forced to work in conjunction with the government in order to stabilize the economy and is therefore not solely to blame for any economic crisis. During the Great Depression, the Federal Reserve was responsible for monetary contraction because prohibitive regulations on lending stopped them from providing liquidity to the market. Today, the Federal Reserve's hands were tied by a lack of fiscal restraint on the part of the Bush administration without cooperation from the government. Alan Greenspan cannot have hoped to stem the out-of-control credit by himself. The current recession cannot be attributed to a lack of monetary policy aptitude, whether in this case a lack of fiscal foresight negatively influenced the actions of the Federal Reserve. The current recession was not exacerbated or even caused by a lack of experience in the Federal Reserve. Alan Greenspan was the Federal Reserve chairman during the administrations of four presidents and until the last administration had cooperation in lowering deficits and keeping the economy healthy. The government's deficit in 2008 was $400 billion, a stark contrast to the $230 billion surplus generated by the economic activities of the Clinton administration. Deficits spending during times of economic growth has a crowding-out effect on investment. If the government borrows too much money, real interest rates rise, and eventually private investors are crowded out of the money market. This happened in early 2001 when large tax cuts warranted an increase in the issuance of bonds to fund the government. The government's overutilization of the lending markets hindered the Federal Reserve's ability to affect long-term interest rates, and therefore their ability to properly fix the economy. This graph shows the national debt as a percentage of GDP since World War II. It clearly shows that since World War II only three presidencies have allowed the national debt to increase as a percentage of GDP. The Reagan and Bush, both Bush administrations, have both ran up in impressive debts, which in turn require more borrowing to pay off interest on those debts. Approaching the year 2009, debt as a percentage of GDP skyrockets. At that time, Alan Greenspan had to ensure that private investors had easy access to capital while also combating inflation. The increased borrowing on a part of the government made combating inflation and keeping interest rates a little difficult. In addition to being hindered by inflexible long-term interest rates, the Federal Reserve under Alan Greenspan was forced to deal with the devastating effects of September 11th. Critics saying that Greenspan kept interest rates too low overlooked the fact that the Federal Reserve was tasked early on with reversing the sprawling damage down to the markets by the attack on the World Trade Center. In a report to Congress, the Congressional Research Service confirmed through their observations that over the long run, 9-11 will adversely affect U.S. productivity growth because resources are being and will be used to ensure the security of production, distribution, finance, and communication. The subsequent wars that stemmed from 9-11 increased the government's debt as well as the cost of global trade, hindering productivity at home. Given the state of global affairs at the turn of the century, and the economic pitfalls those affairs carried with them, the Federal Reserve had a legitimate concern about raising interest rates too low. Had the government cooperated with the Federal Reserve, there may have been a chance to end the union economic crisis by using interest rate hikes in conjunction with conservative fiscal spending. The Federal Reserve began raising interest rates five years ago to responsibly prevent the economy from expanding out of control. However, as the Federal Reserve sought to engage in contracting the economy, government spending increased over that period. What the historic budget deficit of the last eight years has caused is an enormous bubble in the housing and financial sectors of the economy, which eventually led to catastrophic collapse. Though the Fed tried to cool down the economy over the last five years, the fiscal policies that promoted uncontrolled growth and accumulation of debt set the stage for a recession earlier than the Federal Reserve was ever able to react. Thank you. And I would like to introduce my colleague, Jake. It's often thought that Alan Green's ban and bankers' loose credit policies have caused a credit bubble, but I would like to argue against this. I think that there's a global glut in savings that actually caused the credit bubble. Often it is thought that savings that one should save over their lifetime, and this will lead to more wealth. I disagree with this. There is such thing as saving too much. Usually, in a simple ISLM framework, when one saves, this means that they're buying bonds, and when they buy more bonds, it increases their price and lowers their interest rate. The lowering of interest rate increases the incentive to invest because there's lower interest rates and people won't want to invest in bonds anymore. In today's global financial world, capital can flow anywhere. At quick speeds and in many countries. This kind of removes this ISLM framework because over many countries, say for example a country can decide that it might want to invest its savings abroad as in China, they can send their savings to the United States, and that in turn does not allow them to lower the interest rate in that country because they're not buying bonds in China. Many countries that do this, such as China and Japan and the OPEC nations, are sending their excess savings to the U.S. Here's an example of the foreign holders of the United States Treasury Secretary's securities. China is the largest holder. They currently have around 780 billion. Japan's second and OPEC nations and the Caribbean are third and fourth. The Caribbean is kind of interesting. Usually that's up to offshore banks. But Americans' low savings and high consumption offsets foreigners' high savings and low consumption. This results in a trade deficit because our increased income from savings coming into the country raises our imports. This is unsustainable. The only way to offset this uneven balance is to encourage foreign domestic consumption. But as we know, control over foreign affairs is very difficult. Here's a graph showing the rate of change in U.S. debt, looking at the marketable securities and the foreign holders of debt. As you can see, basically throughout this whole period, foreign holders have increased their consumption of U.S. debt. Why do countries send their excess savings here? It's a big question. Well, there's a lot of reasons. One being that government policies dictate a lot of the savings coming to the U.S. As in the case of China, they have a trade surplus with us that's rather large. It's over $200 billion. And it's been growing every year for the past 10 years. And they have all these excess dollars and the government sends their dollars over to the U.S. because their currency that you want is fixed to the dollar. So they must keep their currency undervalued in order to make their exports more competitive to keep the yuan undervalued towards the dollar. So they have to buy more and more treasuries to be able to do this. So that's sending more and more dollars to the United States that otherwise wouldn't be sent here without this government policy. So in a sense, this government policy is augmenting the normal flows of the financial system. Also, a lot of savings come here from other countries that don't have developed capital markets or that have unsustainable capital markets. And here in the United States, our capital markets are developed and rather dependable, except for recently. Also, the investment opportunities are abundant and the legal protections are very solid. So a lot of people want to invest here in the United States as opposed to other countries, believe it or not. And so a lot of people, like a lot of OPEC nations like in Saudi Arabia or Abu Dhabi, they send their savings over to the United States and buy stocks and bonds. Also, the relative safety of U.S. Treasury bills and U.S. dollar reserve currency status is huge in deciding where savings flow. So all in all, there's really not much to do about this global savings, but... So you can't really completely blame on re-expand for this. It's largely out of our control. When foreigners decide to save, we cannot really tell them to save less because we don't have any control over that. We have tried some different policies. We've tried to tell China that they should trade... change their trade and monetary policy, but that hasn't worked, that has been very successful because they have a mission and we have a mission and it just doesn't really work. We've got as far as to call them a currency manipulator, but that hasn't been successful. And so the only options to protect the U.S. were extremely protectionists and they just said it wasn't going to be sustainable. And now for the next group. Hello, ladies and gentlemen. My name is Jonathan Sanjale and I will be arguing about the derivative market on the Greenspan. Greenspan once said that the true measure of a successful career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your way. And using his own definition of a successful career, Allen Greenspan's tenure as Fed Chairman can only be correctly deemed a failure. It is sometimes said in his defense that he could not have foreseen or controlled the problems we are currently facing. I beg to differ. Evidence proves that Greenspan consciously chose a set of policies which led to current financial crisis. As Greenspan himself said, the past is prologue. I argue that Greenspan's actions played a major role in creating a financially unsustainable culture of greed on Wall Street. He consistently advocated that the best means of obtaining a profit was by merely sweeping risks under the rug. Greenspan once said, and I quote, it is precisely the greed of the businessman or his profit-seeking motive, which is the unexult protector of the consumer. As we are witnessing today, nowhere was this less true than in the derivative market. Now let me define derivatives for you. Derivatives are financial contracts or instruments whose value are acquired from the value of something else. They can be used to reduce the risk of economic losses arising from changes in the value of that something else. This is known as hedging, or as I like to call it, hiding risks by spreading it. On the other hand, derivatives can be used by investors to reap a profit if the value of that something else moves in an expected direction. For example, picture someone betting on whether or not you win your next hand in blackjack. This person is taking a risk on whether or not you lose that hand. Essentially, this was being done with life insurances and mortgage-backed securities. This practice is called speculation, a risky action which is clearly not always 100% accurate. Since the value of a derivative is dependent on another value, its true value isn't necessarily always seen on the books. Derivatives involve various elaborate entities which I've only begun to explain, though the potential dangers they carry are quite evident. Frank Partnoy, economics professor at the University of San Diego, and an expert on financial regulation notes that derivatives are a centerpiece of the crisis, and Greenspan was the leading proponent of the deregulation of derivatives. Other experts agree that derivatives are dangerous financial instruments. Warren Buffett, America's most famous investor, called these derivatives Financial Weapons of Mass Destruction. He claimed that these derivatives contracts contain dormant losses that will eventually backfire on their owners. Insurance companies in Banks were particularly affected by this kind of action. It was only a matter of time before the rubbers pulled off from underneath. When the derivative market began in the mid-1990s, the transactions were simpler, more transparent and fair. As the market grew, from 631 billion in 2000 to 46 trillion by the first half of 2007, both transactions and financial instruments themselves became much more complex. Where was the supervision? Where was the regulation? Some argue that Greenspan could only control so much. In reality, Greenspan was not helpless as dangerous derivatives to control the financial markets. Evidence proves that Greenspan ignored the risk and even promoted derivatives. Alec Blinder, a former Federal Reserve Board member and an economist at Princeton University proposed that proposals to bring even minimalist regulation would basically be buffed by Greenspan. He then adds that Greenspan was consistently cheerleading on the derivatives. Greenspan told the Senate Banking Committee in 2003 what we have found over the years in the marketplace is that derivatives are an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing and capable of doing so. He went on to add, and I quote, it would be a mistake to more deeply regulate the contracts. This unquestioned faith in what Greenspan called the power of unbridled financial innovation stands as one of the biggest errors. Greenspan had the ability to regulate derivatives, yet he chose to promote rather than control these financial records of mass destruction. In conclusion, Greenspan's fondness of Washington, what he called America's persecuted minority, led to a financial market built of cards. And I'd like to introduce now my colleague, Anita Menari. Any discussion on elving Greenspan's effect in the financial crisis requires analysis of the money and credit expansion. Recent episodes of financial crises and recession of the global economy have common patterns. In most cases, a country initially benefits from expanding supplies of base money and new money which are created from credit liberalization. The financial sector expands as it increasingly captures profits. The banking system is well capitalized and able to expand credit. Assets increase in monetary value and interest rates are low. This walk effect encourages consumption and volume of business investment. I will argue that this boom, based on irrational disturbance, is destroyed by Greenspan's monetary policy. Greenspan asserts that budget deficits and excessive money growth raise long-term interest rates and thus harm social interest. Greenspan is indeed right to chose to ignore his own views by pumping so much money into the economy that a crash was inevitable. By viewing graphically the unsustainable trend in interest rates selected by Greenspan, I will clear the show how Greenspan's policy artificially created an economic bubble. It would then make the final step in our overall argument to prove that Greenspan's credit policies fail to be suspended. In his Wall Street Journal article from March 11, 2009, Greenspan rejects the idea of the Fed's low interest rate policy between December 2000 and June 2004 through the housing bubble which internalized the foundation for the current crisis. I want to remind you that the federal funds rate is lowered from 6.5% in December 2000 to 100% by June 2003. And it was kept at 1% until June 2004. To understand Greenspan's policies contribution to today's economic crisis, we need to understand the importance of interest rates and how the federal reserve is able to affect interest rates for the money supply. As we can see in the graph provided by the Fed, the constant increase in money supply is followed by the constant decrease in interest rates. It is evident that the credit expansionary policy lowers the rate of interest in addition the slow interest rates are matched by lower savings as shown in the next graph. Furthermore, consumption rises as savings falls and consumers are able to keep out their high consumption patterns while relying on easy credit. At the same time, the increase in money supply and decrease in interest rate triggers more investment. This abundant injection of credit into the system creates the illusion of increasing savings as seen by entrepreneurs. In this way entrepreneurs are pushing to further investments as the graph shows despite savings reaching negative levels. However, in the long run entrepreneurs will depend on this now of lucid savings and when there are actually no savings, the system collapses. In an interview, Greenspan said that global forces beyond the controlling federal reserve have kept long-term interest rates low, fueling the housing bubble earlier this decade. Not all economists are ready to accept this statement. On Greenspan's Monetary Policy, Private Economic Professor Kenneth Rogoff says, if you cut interest rates when asset prices are in full fall then when asset prices are rising while the deptness is rising all over the country, we need to raise interest rates. He actually chose not to do that. Lee Hoskins, former chairman of the Cleveland Fed, says that to find partial causes of the credit turmoil we have to go back to Fed's decision to push the Fed down to 1% and leave it there for over a year. In the midst of an international economic recession and an intensive solar economic crisis, more attention is given to the cure than the cause. However, soon people will look for answers to questions concerning the causations of such a recession. It is very possible that we might be among the ones providing those answers. If Asperg calls the recent recession I will have a short story to narrate. I will call it the disaster story. Consumers and entrepreneurs borrowed too much and saved too little. Eventually, the ones who didn't save did not have any money to buy what the people who borrowed had produced. That resulted in bankruptcies, unemployment, and their in-famous housing borrowers. Why did they borrow too much and save too little? Because interest rates were too low. In addition, the people who borrowed too much couldn't earn enough to pay back the lenders who managed to save because the savers did not save enough for what the borrowers produced. Why did the savers not save enough and the borrowers borrowed too much? Because interest rates were not high enough. Finally, it is important to recognize that low interest rates are necessary for the jump-starting of the economy and that is what Greenspan did. However, once the economy is growing these interest rates need to rise in order to slow down a booming economy before it collapses and that is what Greenspan ignored. I would like to welcome Dr. Lee Harrison Sears. Hello. The Federal Reserve under the care of the so-called Mysgrove Alan Greenspan undertook a policy of easy money, low interest rates and undersigned credit inflation that naturally culminated in the depression we see around us today. Without a doubt, the policies just mentioned resulted in a market that, though a short-term payroll seems phenomenal, was intended to be unstable in the long run. As I will prove in a few minutes I've created a boom-bust business cycle in which consumers over-consume and I'm sure it was mal-invested because of artificial market conditions. The cycle begins with the process of injecting money x and a hillot into markets in order to trust time and rate of interest. I must admit, though, I'm a particular fan of the term x and a hillot. It's usually a term used by illusions of the stride of the actor to die treating the world out of nothing. However, it is after the stride of this business, Green's Bank's credit inflation as well. Along these lines, Congressman Ron Paul noted in February 2000 adjusting Green's Bank's inflation that the last quarter of 1999 might be a historic hazard of injuries in Fed credit over the last three years but the Fed has not been in target range with M3, in fact, through and over by safe time interest rate in 90 billion. So I remind you, never more did take the scope from the money supply the opposing team didn't bother showing you supply that Green's Bank was idle over a sense of becoming a better reserve chairman in 1987. Your response to monetary policies I think not. Returning a bank once to business to business cycle theory that influx of money hit the market and that's where it's a savings and proceeds to lower the rate of interest as proven just prior to my colleague's media. This will take same time to produce that there's a lot of investments against proven and consumers will be paid less to save they already decided to consume in the short run and this will change their consumption preferences and the entrepreneur because there's a lot of investments to make will proceed to invest in the structure production in order in order to safety the high demand sorry investing the structure production in order to safety the consumers preferences for instance are building many retail stores while the demand for consumers is high however all of these investments are made in the boom air growth unsustainable conditions and are against malinvestments eventually Green's Bank did enter even low interest rates and once this happened a bust was inevitable when injections of new money sees into the economy the pool of savings which had imposed the boom to boom returned not only to their pre-inflationary levels but to an even lower one because consumers had simply decided to consume more and save less during that time as a result many of the investments planned by each of them were not able to be finished because of the funds were simply not in existence they must have been entirely created or extremely downsized the contraction of credit also severely hurt banks many of which had far more money during the boom period than they had during the period of credit inflation and it like risky loans to individuals many banks like Northern Ock whose bank run in 2007 was pictured in countless banks on Wall Street who no longer stained business without massive government intervention consumers were also affected because while many of them had gotten easy loans during the boom period while easy money was dropped the economy once the credit contracted they found out that they could no longer pay out their loans so they decided to default on all of those once again the banks here they were already far too they already had far too much they had already not been able to sustain their investments we can get harder because people weren't now defaulting however most of the damage is done in the structured production because while the now investments were made during boom period conditions aimed because that boom period aimed at safety conditions there once they changed now it's producing its service consumer demand during the bust period thus requiring a recession as the economy falls below its capacity while they are reorganizing the structured production in conclusion while green-spent policies result in a period of short-term growth in the last business cycle there's economic disintegration we see around today now as they wrap up by lighting both in Leicester himself straight out of Iron Man 1966 capitalism they are known ideal the excess credit which was paid to continue to the economy still goes on in the stock market triggering a fantastic spectacle of boom it's quite a shame that green-spent cannot apply the license it's so easy to turn the past to its tenures I'm going to give you five third bottles for the opposing team John spent all the years in the opposite team states that green-spent could have done a lot to basically prevent the crisis from happening and for example regulate better regulate the market but green-spent was elected sort of like a deregulated market he believed in capitalist market where basically the market operates on its own without much help from the government now if he goes in and tries to regulate tries to do different things to help it out it's totally against his belief and if it's against his belief why would you do something that's against your belief you're going to try to do everything you can to go the right path you know but you know you're trying to do everything you can to head in the right direction but you're not trying to do something that you think is wrong which he believed that regulated markets are wrong and for example look at the bailout plan now everyone thought that the Fed you know was insane so hoping out banks if he did that 15 years ago what would people have thought then you know so I mean we we look at the $700 $700 billion stimulus plan and what was everyone's reaction to that was if I'm insane that was the initial reaction it didn't pass the first time and if the Fed tried to put this idea to the government for them to do something like this it wouldn't have fly it wouldn't have flown so it just couldn't happen he did what he had to do and at the time it was the best action to take now he does state that his free market beliefs were flawed he does state that but if this is the case then capitalism is flawed and if capitalism is flawed then what market system should we use that's the other question what's the other option and that's all I have I'd like to respond to the opposing side's arguments first by saying that the calls for regulation is about Alan Greenspan personally and this is the person we're talking about this debate is actually about Alan Greenspan and you can go so far as to argue not even the institution of the Federal Reserve so this asking for him to regulate things like derivatives, complex financial instruments regulate the housing market regulate demand from ordinary individuals or corporations all these things are not his job his job as the chairman of the Federal Reserve is to regulate banks acting as the central bank of the United States of America the financial tools that the Federal Reserve has to use all involve the money supply he can raise the reserve requirements for the different banks he can change the federal funds rate the overnight lending rate but historically the Federal Reserve is never going to be targeted regulating these different practices between corporations to ask that of him especially in the past maybe not now when we're restructuring our different financial regulatory institutions it's not a very strong argument to say that he was responsible for this recession also saying that Alan Greenspan fueled the housing bubble is also not entirely true though lowering interest rates does stimulate investment it also stimulates housing purchases it was really the financial instruments that were invented at that period of time that caused this easy availability of mortgages subprime mortgages were invented during his tenure as the Federal Reserve chairman so these are a relatively new invention and they have very little to do with the Federal Reserve's actions there are already government institutions in place like the SEC or the FDIC that work on the finer aspects of the economy whether it be in the stock market or within the banks and if you look at these institutions many people who have done closely observed the economy not just looked at it on a very broad level at the highest level but served a monetary policy have shown that these institutions were also not very active in containing these things when it was actually their job to do that thank you I guess I'll use it so as Harrison said Greenspan isn't a God so that means that he's not an essence and that means he's not the all determining one of credit so I think what they're really missing is actually that there's a lot of actors in this process all those bankers, all the regulations what about the other regulatory authorities such as the FDIC and the office of the control of the currency so it's not just in Greenspan's realm that he just created this bubble he's just one man and as we all know one person can't make that much of a difference so I think that argument is a little bit flawed also I want to kind of come back to what I was saying before is that a lot of these foreign countries that are sending their money their currency over to here this has really played a huge role in propping up the credit bubble because they really rely on us to buy their goods because right now in Asia there's a lot of manufacturing going on there and they need us to buy their goods they need to be cheap and they're sending their dollars over to us so that we borrow and when we borrow we're using their money and we're buying their goods so this is really a huge determinant that I didn't really mention and it's also a big reason why the credit bubble will occur also I'll also mention is that why are people not borrowing so much it's not just low interest rates there's structural issues here what about the real wage not really going up so people have to take on more debt that's also a pretty important thing Greenspan doesn't control wages so there's a lot of other things that are going on also what about the people like to criticize Greenspan but this is all hindsight in 2001, 2002, 2003 everybody was like lower the interest rate, lower the interest rate this is great we need the economy to take off you didn't care really much that's not then but now everybody criticize Greenspan and it's all in the past and I think people need to realize that he did this to help out the economy he didn't necessarily see what that was going to do and he wasn't the only actor if you have good money going after good assets or good policies then even if asset prices come down a little bit that shouldn't lead to a collapse right? this money is flowing to people with good credit and ability, going to good houses going to good businesses and if something happens some turbulence happens that shouldn't be too much of a problem but what the problem was outside Greenspan's realm is that banks and people there's a lot of fraud going on there's a lot of speculation he's not necessarily in control of that so that's a huge part Greenspan can't control this speculation about practices as many others have argued that Greenspan can only control so much in regards to financial and financial regulation that deregulation was not just his doing this is where I like to bring up a quote by a famous economist by the name of Andrew B. who said that if finance was a religion then Greenspan would be the pope now last time I remember the pope was a pretty powerful figure he has a lot of his words his speeches alone affected financial markets so how can we assume that his actions cannot do the same if not more the chairman of the federal reserve is one of the most powerful figures in the world where he generally is defined by GDP and although it was against his beliefs being in such a position being in such a position of power one must learn to adapt for the better of the economy it's not always about your beliefs at some point it has to be about financial sustainability the capacity to regulate derivatives was definitely there but as I mentioned before they will constantly be bought by Greenspan he constantly said that deregulation would be a problem and that the chances of a financial crisis arising from regulation are very slim that obviously wasn't true this is what I would like to say that there is a fine line between risk and financial sustainability because he was a big advocate of risk the other team mentioned how our fiscal policy and specifically national debt being one of the problems and maybe my understanding is that one of the reasons why we are in this procession I would like to argue that actually it was consumer debt that was increased dramatically during Greenspan's tenure and it wasn't government debt did increase however consumer debt was a lot more than government debt increased I believe from 100% of the GDP to 350% of the GDP during Greenspan's tenure the other point I would make that even if we take into account fiscal policy and government debt in the short run this low interest rates probably make sense if you want to try to start the economy and try to address the debt issue however in the long term governments are just like consumers you are just giving them incentive to keep borrowing pursuing their political agenda funding their wars because interest rates are low and my last point is that the Federal Reserve Bank was chartered by the Congress in 1913 as an independent institution so it was supposed to the idea behind that is that it's not affected by government business but it is actually crafting policy that it's for the improvement of society as well and mostly the accusation that the reason why this is happening was Chinese savings that's a pretty ridiculous concept because you have to realize that every dollar used to follow U.S. bonds not so many persons who exist in China instead they were printed by Greenspan's Federal Reserve thanks to its monetary policies we've shown you the graphs one of the effects that that has is that it pushes down the value of the dollar and what do the Chinese want they want their currency to not appreciate against the dollar so the natural thing they'll have to do then is to depreciate the yuan against the dollar and do this by buying dollar-dollar assets like again U.S. strategies this is not a Chinese policy this is not a Chinese action as much as a reaction to Greenspan's own policies you're arguing the circle trying to prove that Greenspan wasn't responsible for it because Greenspan obviously was but this policy they will react to it in the first place plus I'd like to emphasize again and again the Chinese cannot increase the amount of dollars in existence there's no way that they can and it's only by increasing the amount of dollars in existence that you push down the interest rate that is something that only the Federal Reserve can do plus one last thing it would have been very nice to see some evidence and like some evidence and graphs and empirical proof a savings law happening during Greenspan's 10 years not an a priori concept you have to prove it thank you you have their main points you're going to open it up to questions from each other now with green'span obviously he took part in some of this I'll admit that but what I want to stress is that it wasn't just his actions but as many other people's actions that took part in this whole game and Alan Greenspan simply sitting out on his chair he's a signal he's not the he's not the duke he's signaling to many legions of banks and legions of financial institutions and banks and businesses what to do but it's not his actions that necessarily created this credit card it was a lot of people like the subprime mortgage lenders that had a lot of fraudulent practices that brought up prices and houses that created a bubble or it's also the birdie maddox of the world who kind of created these fake financial instruments that were kind of in the SEC's realm that's how Greenspan is going to go and not only that but it wasn't just him you can't say that he isn't a blame but I think he's only a very small part of that situation on the contrary Alan Greenspan is the blame for this crisis and he had policies that very well might have stopped it from happening in the first place first of all his emphasis on deregulation on greed of being good to the markets certainly didn't help it this crisis stopped happening he might have even prevented it somewhat plus his low interest rates he can set the interest rates it's not suddenly he can't blame someone else for driving it so low and he is pumping out money to drive even lower and that money in the end will lead to malinvestments and overconsumption that will lead the way to a buzz to a boom cycle that looks great will eventually lead to a buzz cycle it's great in the short run and sadly now we must pay for that great time of an easy money oraging with a pain with a later buzz cycle thank you so much for your question I have a question I was thinking about the whole time there's going to be a great job or a spirit like this but more deregulation will not set the interest rate there set by the law and we haven't heard much discussion about that we haven't touched on it very much it just seems that the whole bubble so to speak first with the issues when people not being able to pay for these more because they couldn't afford more do you have any thoughts I think more deteriorates there's a lot of stuff going on with that one being that kind of became a government policy that they wanted to increase home ownership so they largely did this through a Freddie Mac and Family May they extended credit by guaranteeing more loans by securitization the problem was that it wasn't the same regulatory authorities to really monitor what were these loans securitizing and selling on to investors what was the quality of them those regulatory agencies that were outside of their authority also I think it was a they wanted to increase home ownership that's not bad but they just didn't have the regulatory framework to deal with and also you can look at where was that credit coming from to fund the more of the securitization credit that was coming a lot from foreign countries you can see the amount of foreign entities holding Freddie Mac and Family May debt that was one of their largest holdings and drastically increased from 2001 to 2008 so I would respond by just presenting a logic that Al Green's been created a culture on Wall Street and this on Wall Street these are the mortgage banks that lend mortgages Al Green's been constantly opposed to regulation he was always in favor of deregulation and what this did was it heated up the market in home mortgages this led to more competition between banks to attract new consumers to take out their particular mortgage entities not directly however the culture that was created by him in this deregulation heated up the market which created competition when they compete they would lower their interest rates to try to make their mortgages more attractive to consumers and this is where subprime mortgages came in to try to attract a larger consumer base that wasn't pretty existing the second largest department of reserve bank is department of supervision regulation and credit and they are supposed to work in close contact with the FHA and they are supposed to work together to make sure that not loans that consumers are protected and they fail to do this and the borders can come down from the top of the Federal Reserve to ask for a better collaboration between this department at the Federal Reserve and the FHA to make sure that consumers are protected from these subprime mortgages and out of inclination that Amgrid Spandt did not push down any of these orders to make sure that consumers are protected from these bad mortgages that we are now dealing with so I would also like to emphasize how the inflation of money in the economy will influence this because what the mortgages are making and who mayors are making all these mortgages the interest rate is low they will be able to supply savings in the markets by which these will be supported they will be able to be paid off however this is all by false pretense because of that driving down that interest rate in fact once the that slows down this inflation once the interest rate rises you see that the banks will then realize that the savings they have that they thought was there landing on is not there that is one of the reasons why you see the entire area the entire all the mortgages come in collapsing quickly after these mortgages the interest rate was pushed up to have an artificial market condition created by the Federal Reserve that creates an environment where these mortgages thrive one quick point too the like Harrison noted the low interest rate spurred a lot of housing building if you look at the construction of houses over the past 10 years it's gone up until until recently and with an excess of housing you would expect the mortgages mortgages to try to be in favor of try to sell more try to sell more houses so you're trying to make mortgages more attractive to consumers so in that way you could say that he indirectly caused more reading of the housing market I don't agree when they said that it was competition that caused the landing on the banks for mortgages it was more that the banks were getting to kill up these fees for keeping out mortgages and that's what really spurred more lending and then on top of that the repackaging of the mortgages the rating agencies will rate these mortgages they'll rate them triple A's and they'll get these different tranches and there will be different triple A's there will be the senior tranches the mezzanine are B's and then the C's are called inequities after they rate that they'll take the mezzanine tranches and they'll turn those and put a new rating called the mezzanine and then the next one will be mezzanine so then people will take these we'll look at the mezzanine ones which are B ratings and buy them because they say triple A in reality they're really not so they take a risk which they don't know that they're taking and that was so it's not that was also part of the reason why they ended up doing it one of the theories I've read recently is that actually what caused all this aspirin is the price of gas so I'd like to answer you a little bit do you think Greenspan has any influence on the price of gas and that really was a cause if you don't mind that I'd like to say that I don't believe that's true I don't know if that helps my argument or not but I think it does so it's good to it's good to discount the outlandish assumptions for you if you try to defend something more realistic gas prices, to answer the second part of your question I think it had all to do with gas prices I learned this from experience when I tried to use that as part of an argument when I presented it in front of the Federal Reserve the employees did not feel that the Federal Reserve should be concerned is that all involved and they they don't with gas prices I feel like it's an integral part of our economy it fuels every aspect of industry that we have when the gas prices are not historically high even before this recession they had stabilized to something that was not as high as they had been not two years ago or one year ago five years ago or four years ago I don't know when that hit their teeth when this huge recession happened that's the first indicator why they're not involved and also this is such a systematic collapse that if you look at the different financial innovations that were going on and you're really investing into the different lending practices that were happening prior to this recession it becomes clear that it's more than a reduction in the commodities price that caused this recession this is really something that's in the system rather than a variable in the system, it's actually a system itself that got out of control and that was not fixed beforehand so now the problem is to make them self-evident now we were not actually disagreeing that was just good I want to say that I guess if you look at the past recessions and you kind of look at the correlation well a lot of past recessions the older price spiked right so that's one huge correlation as if you look back in 74 if you look back at 81 it was all had some kind of older price spike in them so it must be correlated but also to go further than that part of the consumer basket is gas it is oil, it's heating oil it's our energy and if price of oil goes up that means the real wage goes down because those prices are going up so that has an impact on what consumers can spend their money on as well as where those dollars go where else do you want to sound like you're reading they're going to Venezuela they're going to Kazakhstan big oil producing countries and what are they doing with that money they're sending it right back over here I would say correlation does not imply causation as a trite phrase but I'd have to agree with Martin however I agree with you I agree with you I do not think I do not think that gas prices cause our current recession and something that we haven't brought up in this debate at all which I think is something important to bring up on our wages if you look at real wages I don't know figures off the top of my head but I don't know if anyone feels like their real wages have gone up over the past 10 or 20 years and my information is that they have not and Greenspan well he does have a lot of power in controlling wages he testifies to Congress he had a lot of power he talked to us when he spoke the stock markets trembled they said and Greenspan was not in favor of a minimum wage so we can't expect there to be favorable policies for wages which would cause people to actually have income to buy goods and they couldn't save and their wages didn't go up so they had to borrow and they borrowed and that's how I think Greenspan it was caused by not looking at real wages allowing people having a low wage so they didn't have to borrow they didn't cause a credit crisis and I think real wages have increased since the 70s that's what I learned and again to argue the whole idea of Greenspan's power I think it was enormous I think a lot of times it emerged from his articulation every time he spoke most of the time people didn't understand what he was saying therefore they did not know how to oppose him even if they wanted to oppose him but I don't believe I also agree with you and it hurts your argument I don't believe it was the oil prices that caused the recession although I do believe that that can be a reason for future recessions I don't know I definitely agree with you because I do agree that it was a contributor because like you said the prices and the different recessions they occur and the fact that for example we have Saudi Arabia when the prices are high they're getting more revenue and the more money that they have what do they do with it our economy before our recession is doing really well and even further before a recession our economy is actually picking up so what do they do, they start investing in our economy by buildings, by different things in our economy and when prices are so high that a bubble is about to burst what do they do they purchase the bubble so they dump it they basically sell it off and getting their money back and all that is not helping because there's a huge shift in where the money goes at that time I don't know I don't think Saudi Arabia is a good example of money that they make from selling oil coming back here I think they have very high employment although they store a lot of that revenue in their Swiss accounts and fancy buildings but I think a lot of that money has to be spread out because their employment rates are enormous and the only way for the king to maintain his power he also sent some students abroad to study and one student is here at UMass and I know him so if that's revenue coming from your oil consumption I help him at some extent actually they do send a lot of money here and it's not just Saudi Arabia it's a guitar what they're doing is what he's talking about they're sending out sovereign oil funds you can see the direct correlation in terms of the whole price of oil going up and the amount of money these sovereign oil funds have to use and their assets have increased tremendously if you look at Abu Dhabi's they have about 10 sovereign oil funds but their main one, Abu Dhabi Investment Authority you can see that their assets have basically tripled in the past 4 years so that must have to do something what are they buying? US and European corporations they're buying buildings they just bought the Chrysler Building they own 10% of Mercedes they own tons of stuff and also what else were they buying they're buying banks and what does that mean? that means power they have power over banks who's a large shareholder city group that's Saudi Arabia is one of them that's a pretty big holding that's really important and you can't stress more is that they have power they have all the funds so that means that when we're coming down when our assets are coming down when we're coming in trouble they have a lot of say over policies however, you're talking as if money just only comes into existence in these countries who controls the amount of US dollars in existence it's certainly not the Saudi Arabians or the Dubaiis it's the Federal Reserve I mean he did not control the amount of money in their existence he inflated and he did a lot more money to existence Mike I quoted Ron before who said that in 2000 that he wasn't at all obeying the M3 M3 money supply aggregate demands of Federal Reserve in fact he went over by around 200 million again he went over by 690 billion this is not a Federal Reserve but it's cautious about how much money is in existence it's not cautious that the money goes overseas and comes back it is not controlling the money supply and you can't blame the Saudi Arabians for getting money and sending it back here because that money was being treated by the Federal Reserve it's not the Saudi Arabians it's the Saudi Arabians and we really look at this group so kind of stuck in my head every business decision to risk is a calculated risk and the presumption that greed is bad it's unregulatory to do this and a potential greed is what makes the capitalist economy kind of healthy the question really is When it comes to Greenspan, there's a difference between low interest rates, which is what he can control, and easy credit, which is what Congress deregulated, and it annihilated credit. So it wasn't Congress's fault. The other ones had deregulated all the banking rules that came out after the Depression and created the atmosphere and the vehicles for the banks to create all these derivatives and all that kind of stuff that probably that deregulation couldn't do. So it's kind of my question. Well, as I said before, when the analogy that I put up about someone betting or not you win your next hand in Blackjack is a risk that we take and in a capitalist market, obviously, you know, there's always risk. So by taking these risks, it was grabbing all the, it was pretty much spreading it throughout. So as when we talked about the Grading's and Triple A's, it made it more appealing than it really was. So when they failed, it wasn't so much that it went just once to a certain place that it failed. So when it failed, so many other places failed because the risk was spread out through the mortgage-backed securities and the other things like that where they were betting, pretty much betting on whether or not they were going to fail. And I would say Congress deregulated, that is true, but I would put blame on Greenspan still. Greenspan sat in front of Congress and continued and stuck to his grounds about how he felt about deregulation, which, flawed or not, we can debate that another day. But the fact is Congress listens to Greenspan. Congress still listens to the Fed Chairman. Fed Chairman is one of the most powerful, powerful figures in the world. I was working with my uncle and I think I was maybe 14 or something. I didn't really know anything about economics or much. And he asked me, who's the most powerful man in the world? And I said, I don't know, President of the United States, probably not. He told me it was Alan Greenspan. And that stuck with me. I mean, he had so much power, he said two words and the Tokyo Stock Exchange drops significantly. Is there rational to her speech, which is infamous. So I would put a lot of blame on him still for continuing to tell Congress that deregulation is the way to go to have a stable economy. I have a question for you guys. Greenspan for a generation was held up as the genius. He took all the accolades for driving the economy. Doesn't he deserve some of the blame when it goes south? I mean, he can't take all the credit and they're not taking the money. I mean, this takes some of the blame. He said that is his free market, at least, worth a lot. So he does take that blame. However, it's, you know, is he completely to blame? Yeah, I would say he is more responsible for the success than he was for the failure. So I can say that different amounts of blame can be attributed to different factors. I would say that there are all these innovations being made in the early 90s and the late 80s and the financial markets that there were inventions that had been tested out yet. Nobody knew what they would really do in the long run. We were talking about the Clinton administration's policy that you have one home for every individual. The consequences of that were not properly researched. People hadn't anticipated the consequences of giving people these loans that were easy to get and not investigating their ability to pay them off. I would say that Alan Greenspan was given a lot of credit for the economy succeeding over the 1991 to 2001 expansion. During this expansion, all these different variables were being introduced into the market. These externalities outside of the Federal Reserve influence. So I would say there was sort of a change in the culture of our economy that brought the control of success and failure more out of the Federal Reserve's hands and into the hands of irresponsible investors and lenders. And this debt and this credit and these hazardous investments gained in size without anyone regulating them or observing this or being aware of it, including the Fed because it wasn't really traditionally their job to look over the financial trades that were going on between corporations. So I would say yeah, you can attribute more success to Greenspan than you can failure in this case because it was in the late end of this tenure when these innovations and these different machinations were occurring that brought about this recession. And I mean if you look at it during the fall this time, you had high inflation rates, high unemployment rates and then when he came in, what was the result? Low unemployment rates, low inflation rates. I mean what's bad about all that? All that stuff that he did. Right now unemployment is at what? 8% or something like that? And it was around that percentage when Walker was coming out and he brought it low and it stopped low for a while until currently. And like he said those externalities that were in it, I also agree with him. I believe those were definitely a factor. Can I have two quotes? I don't know. I guess I think it's often said that we put on too much blame for people's mistakes and give them too much credit for their successes. I think this is a really classic textbook case of this, is that people were saying, oh Greenspan did a great, great job. But really I think there's a lot of other things going on other than Greenspan. The other thing is Crash, everybody blamed it on him. I don't think he got way too much blame for what his share was. So what should be your plan to prevent this? Not keep interest low for too long. Just not ignore that. I also think that the reason why they blamed him so much is because he had this almost prophetic figure. If he was just another German, I think that would be somewhat expected. But because he had this very big figure, it was disappointing. It's like again the Pope analogy. Why isn't this just part of the normal cycle? Recessions happen. There is a boom and a bust. That's the cycle. We all learned in school when we were here too. So why isn't this just, I don't know, we haven't had a recession really of any significance since the 70s, where it was in the 80s or pretty mild. So why isn't this just a recession? It's just a bad recession. We have 25 years of pretty high prosperity. Not everybody's sure about prosperity, but there's a lot of wealth generally that's kind of great for a number of years. I think to answer that question I think it takes a while. It's complex. But the first thing that comes to my mind is that again this is international and I think that's why the magnitude of this recession is so big. So maybe it does resemble the Great Depression in the 70s. You can't compare it to the Great Depression because it is international and we're seeing it every day. So that's one aspect of it. To address that, one reason why this recession is very important is that we have the theories to explain it. Low interest rates caused a skew in the structure of the recession. It's not just a business cycle that normally isn't capitalism. It's a business cycle that's caused by the actions of Green Standard in the Federal Reserve. I would say we do have business cycles. They go up, they go down, but they are on a general upward trend that's what we learn in macro 104. And this one though was up. The Fed is supposed to implement policies on the option to make that sustain and make sure that it doesn't just go straight up. Make sure that what goes up must come down. But the Fed knows that and they're trying to make sure that what goes up stays up for as long as possible. But if it has to come down it doesn't crash. It comes down to a point that's... Yes, that's what I'm trying to say. My friends over here continue to talk about interest rates. So I would ask you what is the question? What if Green Band had decided to gradually increase interest rates using that food stock? Is it a recession? When are we talking about would you say gradually increase interest rates from two to three years? Well, the decision was made to gradually increase interest rates about four years ago. And I would argue that at that point in time it was difficult to raise them any earlier than that point. Like I said in my argument, the memory of September 11th was still fresh on our heads. The Federal Reserve had to do things that were completely unprecedented in their history. They had to prevent a lending freeze among banks. They had the threat of a recession already placed on them. Then there's this huge influx of government spending from financing wars, and the borrowings out of control. So they really had to keep interest rates low over that period, and if they had raised them earlier, you might not have even seen the amount of expansion you did. And we could be experiencing this recession earlier because even if you were raising interest rates gradually over that period of time, you still had this crisis in the income mortgages that was going on in the service and interest rates wouldn't change what was happening within that home mill crisis. This is one of the traditions of our debate series. And this graphic was generated by the debate team members. All of the debate team members and the judges will get their t-shirt. So thank you all. It was a really good time.