Comstock Partners blames Greenspan for Japan-like crisis

Filed under: Japan, Politics, Housing, Recession

Comstock Partners, one of the most respected (and bearish) value shops on Wall Street, just came out with a special report that gives a grim analysis of the current U.S. economic situation and a harsh indictment of Alan Greenspan’s role in creating it.

Charlie Minter and Marty Weiner believe that the Fed has been guilty of over-interfering in the U.S economy. They think Greenspan (in the late 1990s and then again in 2001 after the terrorist attacks) kept money too cheap to stave off an immediate but short-term crisis. We’ve all nearly forgotten how in 2001 many smart people thought that real estate was overvalued and headed for a fall. Comstock didn’t forget.

“The money that was pumped into the economy stopped the market decline and rather than going into a severe recession (which should’ve and would’ve happened) we experienced the mildest recession in history,” the Comstock fund writes. “Home values were at extremely high valuations in 2001, yet after the stimulus started it drove the valuations to outrageous levels.”Comstock says Greenspan should’ve known superior. And, in fact, did know superior. They dug up a 1974 op-ed Greenspan wrote in March 1974 when he was President of Townsend-Greenspan & Co. Greenspan then railed against politics interfering with the economy with a swift fix that creates worse problems.

Greenspan wrote: “I see inflation as essentially a political, not an economic problem. Political decisions on economic policy are characterized by a focus on short-term benefits at the expense of long-term costs…. Since deficits which are not accompanied by an expansion in the money supply induce sharply rising interest rates which offend the housing constituency, there’s a further tendency for the money supply also to expand. The result is a standard fiscal-monetary inflation such as we’re now experiencing.” That was 1974, mind you.

Comstock thinks the only way the Fed and the government can fix this mess is to get out of the way as housing prices roll down the hill to pre-bubble levels. Comstock states we could be in for Japan’s long, slow decline or just get it done by the end of next year.

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This entry was posted on Monday, June 16th, 2008 at 5:23 pm and is filed under Real Estate and Housing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.