Economist Dean Baker: Strip Greenspan, Trichet of their Pensions

Thursday, 06 Jun 2013 08:12 AM

By Michelle Smith

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Former Federal Reserve Chairman Alan Greenspan and former European Central Bank President Jean-Claude Trichet should be stripped of their pensions because the ailing public is paying for sheer failure, according to Dean Baker, co-director of the Center for Economic and Policy Research.

The U.S. and European economies are seeing the worst downturn since the Great Depression, Baker explains in an article for The Guardian, and millions of people have lost their jobs, their homes, their healthcare and some have even lost their lives.

But Baker says the two individuals who bear the greatest responsibility for the disaster — Greenspan and Trichet — aren't suffering at all. In fact, as the masses try to piece their lives back together, these gentlemen are enjoying public-funded pensions and reviewing invitations to dole out their expertise on economic policy.

Forbes Columnist:
‘Who the Hell Cleared This?’

"This should infuriate people everywhere," Baker writes.

By now, people should understand that the global economic crisis was "an entirely preventable disaster" because "asset bubbles were allowed to grow to ever more dangerous levels," he says.

U.S. housing prices had kept pace with inflation for 100 years. Then, between 1996 and 2006, house prices rose 70 percentage points over the rate of inflation. There was nothing in the dynamics of supply and demand to justify this increase, but Greenspan didn't do anything to address the problem, Baker alleges.

In fact, he told The Washington Post that he did not even know of the explosion of subprime lending until his last month as Fed chair in January 2006.

"If that is actually true, it displays a level of incompetence that puts a drunken school bus driver to shame," Baker writes.

But Greenspan is unlikely to agree that he should be judged so harshly.

"I have no regrets on any of the Federal Reserve policies that we initiated back then," he told CNBC in a 2008 interview.

"If we can get forecasts right 60 percent of the time, then we're doing extraordinarily well," Greenspan said. "In retrospect: Do I think it would've been nice to have a higher record of forecasting accuracy? Of course. Do I think that it's possible? No."

According to Baker, Trichet lacks any better defense for the bubbles that grew on his watch. Clearly unsustainable trade imbalances were developing in Europe's peripheral countries.

As early as 2004 the current account deficits in Spain and Greece were over 5 percent of gross domestic product (GDP) and in Portugal it was 8.3 percent of GDP. In 2007-2008, these deficits peaked at 10 percent or higher, Baker explains.

"How did Trichet think that deficits of this size would resolve themselves in a single currency?" Baker asks.

"Economists believe that it is important that workers be given incentive for good work and punished for bad work. It would be hard to imagine central bankers more in need of punishment than Greenspan and Trichet," he states.

With regards to a clawback of their pensions, Baker tells MarketWatch, "I don't think it is going to happen. But do I think it is justified? Absolutely."

Forbes Columnist: ‘Who the Hell Cleared This?’

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