- Fri. Sep. 5, 2008
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Another Bubble Pops
One kind of speculative bubble, quite familiar in Washington, is the bubble of public esteem that occasionally forms around public officials before inevitably bursting. That pop may have been the sound heard last week on television as former Federal Reserve Chairman Alan Greenspan engaged in an all-out effort to salvage his reputation. (Fading Hollywood stars usually undertake this task on Jay Leno’s show; economists choose CNBC’s Maria Bartiromo.)
Ostensibly, Greenspan’s purpose was selfless—to rescue the country from an overreaction of regulation—but The Wall Street Journal wasn’t buying it: “Greenspan Goes on Defensive,” read its headline.
The Maestro unfurled several excuses, all of them based on the argument that his power was overstated. Global forces drove the housing bubble, and “the Federal Reserve lost its ability to influence long-term [interest] rates several years ago,” Greenspan said. He admitted that he underestimated the potential for a housing bubble, but then added that it’s impossible to prevent bubbles in a growing economy. Hammered for a front-page speech in 2004 recommending that homeowners get adjustable-rate mortgages, Greenspan said that people have unfairly ignored a back-page retraction eight days later. On regulating markets, Greenspan simply said he deferred to others at the Fed.
While he takes credit for guiding Fed policies considered successful, he spreads the blame for the failures—and scoffs at the idea that he could dominate the “highly educated, very intelligent” colleagues on the Fed board.
Looking less than magisterial, Greenspan pulls out speeches, highlighted in green ink, that he argues exonerate him on various points. On the charge that he ignored the warnings of Fed Governor Ed Gramlich about subprime mortgages, Greenspan produces a macabre alibi—a note he received days before Gramlich died of cancer in September. “I truly wish the press would stop kicking you around on this subprime supervision issue,” Gramlich wrote, in a halting hand.
Considering Greenspan’s former deification, the need for such theatrics seems remarkable. His latest comments on the economy (“We’re in the throes of a recession”) and bailouts (the Treasury must mount a savings-and-loan-type rescue) were huge news because he is still trusted by so many.
Apparently, people still desperately want to know what Greenspan thinks—even about himself. Such cognitive dissonance is, of course, a characteristic sign of a bubble ready to burst, as Greenspan might admit. --John Maggs/National Journal
Not-So-Disadvantaged Business Probed
A Miami-based defense contractor under investigation for possibly delivering faulty munitions to Afghan security forces saw his business boom after being labeled as a “small disadvantaged business.” Government officials, however, say that the company is no such thing.
Before first being designated an SDB in mid-2006, AEY Inc. had done $8.1 million in business with the federal government. Since then, AEY, which is owned by 22-year-old Efraim Diveroli, has earned more than $204 million in contracts. To be certified as an SDB—a category that the government tracks and sets goals for—companies must provide extensive evidence that they are socially and economically disadvantaged. Officials from the Small Business Administration say they have no record of AEY ever applying for or receiving certification as a small disadvantaged business.
AEY was first designated as an SDB on a June 8, 2006, contract with the State Department to “provide ballistic combat vests for Pakistan” for $624,977. State Department officials are chalking up the improper designation to a “coding error,” which would have had to occur individually on each of the contracts AEY was awarded as a small disadvantaged business.
The vast majority of those contracts were through the Defense Department. Small disadvantaged businesses can receive extra credits on bids for Defense contracts. The Pentagon didn’t respond to requests for comment.
The House Oversight and Government Reform Committee has set a hearing on AEY’s possible violations of laws and contracting regulations for Thursday. --Elizabeth Newell/Government Executive