<http://news.yahoo.com/s/nm/20070917/bs_nm/ greenspan_dc_6;_ylt=Am7YIrFT00cOLJ0xdRKBtCIE1vAI>
Greenspan clarifies Iraq war, oil link By JoAnne Allen Mon Sep 17, 2:51 AM ET
WASHINGTON (Reuters) - Clarifying a controversial comment in his new memoir, former Federal Reserve Chairman Alan Greenspan said he told the White House before the Iraq war that removing Saddam Hussein was "essential" to secure world oil supplies, according to an interview published on Monday.
Greenspan, who wrote in his memoir that "the Iraq War is largely about oil," said in a Washington Post interview that while securing global oil supplies was "not the administration's motive," he had presented the White House before the 2003 invasion with the case for why removing the then-Iraqi leader was important for the global economy.
"I was not saying that that's the administration's motive," Greenspan said in the interview conducted on Saturday. "I'm just saying that if somebody asked me, 'Are we fortunate in taking out Saddam?' I would say it was essential."
In his new book "The Age of Turbulence: Adventures in a New World," Greenspan wrote: "I'm saddened that it is politically inconvenient to acknowledge what everyone knows: The Iraq war is largely about oil."
U.S. Defense Secretary Robert Gates on Sunday rejected the comment, which echoed long-held complaints of many critics that a key motivating force in the war was to maintain U.S. access to the rich oil supplies in Iraq.
Appearing on ABC's "This Week," Gates said, "I have a lot of respect for Mr. Greenspan." But he disagreed with his comment about oil being a leading motivating factor in the war.
"I know the same allegation was made about the Gulf War in 1991, and I just don't believe it's true," Gates said.
"I think that it's really about stability in the Gulf. It's about rogue regimes trying to develop weapons of mass destruction. It's about aggressive dictators," Gates said.
Greenspan retired in January 2006 after more than 18 years as chairman of the Fed, the U.S. central bank, which regulates monetary policy.
He has been conducting a round of interviews coinciding with the release of his book, which goes on sale on Monday.
In The Washington Post interview, Greenspan said at the time of the invasion he believed like President George W. Bush that Iraq had weapons of mass destruction "because Saddam was acting so guiltily trying to protect something."
But Greenspan's main support for Saddam's ouster was economically motivated, the Post reported.
"My view is that Saddam, looking over his 30-year history, very clearly was giving evidence of moving towards controlling the Straits of Hormuz, where there are 17, 18, 19 million barrels a day" passing through," Greenspan said.
Even a small disruption could drive oil prices as high as $120 a barrel and would mean "chaos" to the global economy, Greenspan told the newspaper.
Given that, "I'm saying taking Saddam out was essential," he said. But he added he was not implying the war was an oil grab, the Post said.
DISMAY WITH DEMOCRATS
Greenspan, who in his memoir criticized Bush and congressional Republicans for abandoning fiscal discipline and putting politics ahead of sound economics, also expressed dismay with the Democratic Party in an interview with The Wall Street Journal published on Monday.
Greenspan told the Journal he was "fairly close" to former President Bill Clinton's economic advisers, but added, "The next administration may have the Clinton administration name, but the Democratic Party ... has moved ... very significantly in the wrong direction." He cited its populist bent, especially its skepticism of free trade. Clinton's wife, Sen. Hillary Clinton, is the Democratic presidential front-runner.
Greenspan, a self-described libertarian Republican, told the Journal he was not sure how he would vote in the 2008 election.
"I just may not vote," he was quoted as saying, adding, "I'm saddened by the whole political process."
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Wall Street Journal - September 17, 2007
Greenspan's Dismay Extends Both Ways By GREG IP
WASHINGTON -- Former Federal Reserve Chairman Alan Greenspan spent much of the past 40 years as an influential economic adviser to both Republicans and Democrats, but today feels estranged from both. News coverage of his memoir has focused on his criticism of Republicans for forsaking their small-government principles. But in an interview with The Wall Street Journal, Mr. Greenspan expressed just as much dismay with the Democratic Party.
Mr. Greenspan, a self-described libertarian Republican, said he was "fairly close" to President Clinton's economic advisers -- Treasury secretaries Robert Rubin and Lawrence Summers and Deputy Treasury Secretary Roger Altman. "The Clinton administration was a pretty centrist party," he said. "But they're not governing again. The next administration may have the Clinton administration name but the Democratic Party...has moved...very significantly in the wrong direction," he said, referring to the Democratic Party's populist bent, especially its skepticism of free trade.
Mr. Greenspan told CBS's "60 Minutes" in an interview broadcast last night that Democratic presidential candidate Hillary Clinton is "unquestionably capable" and "very smart," but, still, his "tendency would be to vote Republican." Yet in his interview with The Wall Street Journal, he said he isn't sure how he will vote. "I doubt if I would vote Democrat," he said. "I just may not vote. At the moment it's extremely hard to say.
"I'm saddened by the whole political process, and it's not an accident that Republicans deserved to lose in 2006 -- it wasn't that the Democrats deserved to win," he said. "When it came time to rule, all of a sudden their ratings collapsed, and the reason they collapsed is they're just as negative as the Republicans."
In the Journal interview, Mr. Greenspan also said he had put the odds of a national decline in housing prices at less than 50-50, at least until a couple of months ago, based largely on the experience of Britain and Australia. His book notes that in both countries, home prices, after sustained booms, have "leveled out or declined slightly, but at this writing have not crashed." But he says he has become less optimistic since his book was finished, when it became clear the construction industry was unable to reduce the number of housing starts below the rapidly falling level of home sales.
There is now a "very large" inventory of unsold, newly built homes whose condition is deteriorating more rapidly, than, say, a steel mill's, and that puts pressure on builders to sell them quickly, he said. As a result, "we have the capability of far bigger price declines," which will pinch home equity, lead to more defaults on subprime mortgages and pressure consumer spending. The probability of a recession, which earlier this year he put at one-third, is now "slightly more than a third," he said.
Mr. Greenspan was appointed Fed chairman by President Reagan in 1987 and served through early 2006.
"I was brought up in the Republican Party of [Barry] Goldwater. He was for fiscal restraint and for deregulation, for open markets, for trade," Mr. Greenspan said in the interview. "Social issues were not a critical factor. The Republican Party, which ruled the House, the Senate and the presidency, I no longer recognize. It's fundamentally been focusing on how to maintain political power, and my question is, for what purpose?"
He also expresses puzzlement over Mr. Bush's and Mr. Cheney's continued advocacy of antiterrorism policies that have the effect of curtailing civil liberties. If there had been additional terrorist attacks in the U.S. after Sept. 11, 2001, he said, "Cheney's and Bush's view would be now far more prevalent" in the U.S. But "when events changed, they held the views that they previously held." He adds that while he doesn't like their stance, "I don't know what should have been done otherwise" because he lacks the access to classified information that they have.
A spokeswoman for Mr. Cheney said he "has enormous respect for Alan Greenspan and considers him a good friend. He looks forward to reading the book."
Mr. Greenspan was himself a behind-the-scenes advocate of overthrowing former Iraqi leader Saddam Hussein. He says he felt "getting Saddam out of there was very important," not because of weapons of mass destruction, but because he was convinced the Iraqi dictator wanted to control the Strait of Hormuz, through which a sizable portion of the world's oil passes. That would enable him to threaten the U.S. and its allies. He said he conveyed that view to both Mr. Cheney and then-Defense Secretary Donald Rumsfeld, another friend from the Ford administration, but doubts that played a part in the Bush administration's decision to invade Iraq.
He recalls one administration official telling him such an argument couldn't fly politically, which Mr. Greenspan assumed to mean because of Mr. Bush's and Mr. Cheney's background in the oil industry. Yesterday, Defense Secretary Robert Gates, appearing on ABC's "This Week," rejected the assertion in Mr. Greenspan's book that the Iraq war "is largely about oil." Mr. Gates said, "it's about stability in the Gulf. It's about rogue regimes trying to develop weapons of mass destruction."
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Q&A: Greenspan on Bubbles, Saddam, Cheney and Bernanke By Greg Ip
In an interview in conjunction with the release of his memoir, Alan Greenspan discussed a wide range of subjects: the increased role of bubbles in business cycles; the global roots of what he now acknowledges was a housing bubble; his advice to the Bush Administration that Saddam Hussein should be removed before he gained too much control over the world oil supply; Dick Cheney; and the benefits of introverted Fed Chairmen. “The Age of Turbulence: Adventures in a New World,” published by Penguin Press, is to be released officially today. (See related story.)
At the Brookings recently, you talked about the role of psychology in business cycles. The book doesn’t get into that much. It’s inferred. Sort of post-book. What strikes me about the current period is it’s wholly consistent with my generalized view of how important innate human characteristics are in sustaining the business cycle. I’ve always been concerned that in setting up an econometric model you take history irrespective of whether it’s up or down, and there’s an implicit judgment that the coefficients work symmetrically on the upside and downside. There is a general belief for example that capital gains on homes has a buoyant effect on consumption going up and precisely the same on the other side. I’m beginning to question whether that premise is true.
For example, the academic literature seems to have established that for most of us, the pain of a dollar of loss is far greater than the pleasure of a dollar of profit. Yes. Fear is the driving force on the downside. Elements of wishful thinking and euphoria form the upside. When we look at the external world it’s very obvious. Fear is a far more dominant projector of action than is euphoria or anything like that. The division of labor ... essentially creates competition and specialization and hence rising productivity and growth. Fear invariably and universally induces disengagement and disengagement is negative division of labor.
So a bubble is the inevitable end of every business cycle? It comes to an end under two conditions. One is a bubble, or some variation of a bubble, in which capital investment is projected with expectations which are not realistic. The other is ... you get an inventory cycle. [At the bottom of the cycle] inventories are liquidating .. and consumption is above production and as it goes up, production goes above consumption until [inventories need to be liquidated again]. There is no irrational euphoria, it’s just misjudgments.
At the Fed you said housing was in a froth, but you avoided calling it a bubble. From the vantage point of 2007, can you say now that it was in a bubble? Oh yeah. Lots of froths are equal to a bubble... What was driving prices higher was essentially the aftermath of the decline of the Soviet Union and the fall in real long term interest rates which drove up residential prices all over the world. And indeed, the U.S. was not at the top of the list by any means. It drove them up sooner in Britain and Australia as I recall. I find this issue that the Federal Reserve created the housing bubble just utterly devoid of any awareness of who created all the other bubbles. And they all look alike. Long-term real interest rates moved [in] parallel all over the world and the results were what you always get: a fall in equity [risk] premiums, a rise in price:earnings ratios, huge increases in liquidity, and large increases in the market values of assets.
Many people, including some former colleagues of yours from that period, believe the Fed kept interest rates too low for too long, thereby contributing to the housing bubble and problems in subprime mortgages. Do you agree? We kept them too low for too long because we were effectively creating an insurance against [deflation]. The problem in making choices is that you recognize that if you miss, you can end up with interest rates too low, too long. The question is, what did that have to do with the housing boom? Remember that long term Treasury rates and mortgage rates stayed flat from early 2004 through the summer of 2005 [while the Fed raised the federal-funds rate from 1% to 3.5% in 0.25 percentage-point steps]. We tried effectively to get mortgage rates up as part of our incremental 25 basis point operation and we failed... If we were dealing with an inflationary environment, we would have had no trouble getting the 10-year [Treasury yield] up... Had we [raised rates] earlier, do you think we wouldn’t have gone through exactly the same phenomenon?
Your book criticizes the Republican Congress and the Administration for abandoning small government principles. Is Dick Cheney part of the problem or part of the solution? I don’t really know. I mean you have to understand how profoundly impressed I was with Dick Cheney during the Ford Administration. And he and I remain very close in the years subsequent. Indeed, he was the only person who showed up at both my 50th and 70th birthday parties. And I still hold him in high regard. There’s an extraordinary intelligence there. He has very good judgment on issues... I do know that other than the issue that we had on the deficit [whose importance Cheney downplayed] that he had very much the same ideas as I had. I have no reason to believe his views from the Ford administration have changed.
His popularity ratings are quite low and he’s sometimes portrayed as sinister. Is that an accurate characterization? Not in the slightest. He has strong views but manipulator, that he’s not. He’s been very straight with me. Clearly we don’t hold the same views we did back in the Ford administration and don’t have similar objectives. As I point out in the book, it’s unrealistic to believe that people in public office and public life will not have their views changed as indeed mine were between, say, 1977, when I left the Ford Administration, and [now].
Tell me about your views on the importance of deposing Saddam. My view of the second Gulf War was that getting Saddam out of there was very important, but had nothing to do with weapons of mass destruction, it had to do with oil. My view of Saddam over the 20 years ... was that he was very critically moving towards control of the Strait of Hormuz and as a consequence of that, control of the oil market. His purpose would be very much similar to [Venezuelan President Hugo] Chavez’s actions and I think it would be very dangerous for us. So getting him out to me seemed a very important priority.
Did you share this view with Cheney and Defense Secretary Donald Rumsfeld? Oh yeah.
Do you think it influenced the Administration’s decision to invade Iraq? Their decision had been made prior to my discussions with them. My recollection is that someone said, ‘We can’t deal with oil because it’s a major political problem’ [because both Bush and Cheney came from the oil industry]. But it was not Cheney or Rumsfeld.
Isn’t it ironic that you, a Republican, seem to have respected, Bill Clinton, a Democrat, most of all the presidents you knew? Look, the Clinton Administration was a pretty centrist party. Pro- international trade. I could see myself fairly close to [Robert] Rubin and [Lawrence] Summers and Clinton and Roger Altman and a number of the other people there, but they’re not governing again. The Democratic party has moved away, I fear very significantly in the wrong direction. And I’m saddened by the whole political process. It’s not an accident that Republicans deserved to lose in 2006, and I said it wasn’t that the Democrats deserved to win and they proved they didn’t deserve to win by having been very effective on the negative side. But when it came time to rule all of sudden their ratings collapsed, and the reason they collapsed is they’re just as negative as the Republicans. I mean, we have some very fundamental problems that require action.
Now it turns out politics is less important , domestically , than it was, because globalization is taking over an ever increasing part of the decision making process with the exception of national security.
How is your successor, Ben Bernanke, doing? He’s doing excellent. I think he’s handling policy quite sensibly. And not of a small matter, his regulatory views are very close to mine in virtually every aspect I’ve seen. What he’s essentially doing is carrying forward the major regulatory issues I developed with staff, like on [government-sponsored mortgage companies] Fannie [Mae] and Freddie [Mac] and numbers of other questions that have emerged. I really appreciate that.
He’s an extraordinarily intelligent guy. I had previous contact with him at Jackson Hole [in 1999]. He was one of the very few people who supported us on the issue of not targeting asset prices. And very many of his views were consonant with things that I believe. The trouble is he’s as introverted as I am.
At least Bernanke eats lunch with the staff in the cafeteria. You never did that. He’s more gregarious than I.
In your book, you refer to Paul Volcker as “introverted and withdrawn.” Isn’t that like the pot calling the kettle black? He’s worse than I am. I think though ... where the issue of policy is really complex and not just a survey of other people’s opinions, you want somebody who is comfortable with his own judgment. Volcker ... may not have been open and jovial and outward-going but he had strong convictions. And that’s not inconsistent with introversion. I would be uncomfortable with a “hail fellow well met” central banker.
Because he might be too anxious to please? Yes.
Do you aspire to a job in public life again? I don’t think so. There’s no other job in public life that is like chairman of the Fed. [This] gets around to a question of whether I should just be shutting my mouth and going fishing. I confronted the issue. Since 1948 I have spent every single day thinking how the economic and political worlds have changed. If somebody had said to me in June or July of 1987, ‘We’d like you to become chairman of the Federal Reserve, but you’re never allowed to discuss any economics after you leave,’ I’d have said, ‘Forget it.’ What do they want me to do? Become an anthropologist? The best thing I can do is try to stay away from the sensitive issues where it gets me second guessing what Ben is doing... I understand and am very much sensitive to my talking and what for example, my friends at the Fed may think ... and I try as hard as I can to stay away from tha