The defense of monetary policy during the gestation years of the housing bubble was reiterated (yet again) yesterday by former Fed chief Alan Greenspan in a paper(.pdf) titled “The Crisis” that is being presented today at the Brookings Institution.

While the 48 pages of text and the 18 page appendix await attention that they are unlikely to receive from me on this Friday, the contents are quite clear based on reports in the mainstream financial media and the two central points appear to be:

1. Low rates are not to blame
2. See number 1

The Wall Street Journal carries a story in the public area of their website today where Jon Hilsenrath restores some order to the recent reporting on the former Fed chairman, inserting the once-mandatory caveats that all post-2008 Greenspan stories used to carry before an image re-building campaign apparently met with some success over the last year or so:

Mr. Greenspan’s reputation has been tarnished by the crisis. Widely hailed when he left office in January 2006 as one of the greatest central bankers ever, he is now blamed by many for advocating deregulation and low interest rates during the 1990s and 2000s.

That’s more like it – the third paragraph in – short and sweet.

In his paper, Greenspan concedes that regulation failed and that the central bank didn’t see the mounting risks in the financial system, but he goes on to defend monetary policy back in 2002-2004 and blames the “savings glut” as the primary interest rate culprit, that is, the theory that short-term rates played little role in inflating the housing bubble and that the Fed was powerless over the long-term rates that did.

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