Nouriel Roubini

Factual · Economics and markets

“Greenspan and Fed had talked in ’96 about irrational exuberance in tech stocks and did nothing about it, and after the tech bubble burst they cut rates aggressively down to 1% and they created the seeds of the next bubble, this housing and credit bubble”

Nouriel Roubini, professor, Stern School of Business · 2009 · The housing crash and the man who saw it coming (OpenLearn)

Greenspan and the Fed spoke of irrational exuberance in tech stocks in 1996 without acting, and after the tech bubble burst cut rates to 1%, then to zero after the housing bust.

Mostly true True in substance, wrong in a detail.

What would count as true or false

The proposition has three parts: (a) Greenspan and the Fed spoke of 'irrational exuberance' in 1996 (Greenspan's Dec 1996 speech) and did not act; (b) after the tech bubble burst the Fed cut rates to 1% (June 2003); (c) the Fed then cut rates to zero after the housing bust (Dec 2008, 0–0.25% target range). True: all three are confirmed by Fed records. Mostly true: all are substantially correct with a minor detail slip, for example the 1996 speech referred to asset values generally rather than tech stocks specifically, or 'did nothing' overlooks a single minor rate hike (March 1997). Mixed: one of the three parts is materially wrong. Mostly false: two parts are wrong. False: all three are wrong.

Evidence

1. Fed's Change Comes at Dicey Time for Economy Los Angeles Times (Associated Press infobox) · 31 January 2006

   “Dec. 5, 1996: Greenspan delivers a speech in which he wonders whether the stock market’s rise reflects “irrational exuberance.” Stocks plunge but then resume rising.”

2. Fed's Change Comes at Dicey Time for Economy Los Angeles Times (Associated Press infobox) · 31 January 2006

   “September 1996: Greenspan persuades his Fed colleagues not to raise interest rates, arguing that worker productivity is rising faster than government statistics are showing”

3. FRB: Press Release -- FOMC statement -- June 25, 2003 Board of Governors of the Federal Reserve System · 25 June 2003

   “The Federal Open Market Committee decided today to lower its target for the federal funds rate by 25 basis points to 1 percent.”

4. FOMC statement Board of Governors of the Federal Reserve System · 16 December 2008

   “The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.”

Reasoning

E1 confirms that Greenspan's December 5, 1996 speech asked whether the stock market's rise reflected "irrational exuberance". It refers to the stock market in general, not tech stocks specifically, and the criteria treat that as a minor slip. E2 shows that in September 1996, before the December speech, Greenspan persuaded Fed colleagues not to raise rates on productivity grounds; this is consistent with no tightening at that time but is not a response to 'irrational exuberance'. The Fed's own statements confirm the cut to 1 percent in June 2003 (E3) and the 0 to 1/4 percent target range set in December 2008 (E4).

Cite this claim

Nouriel Roubini, “Greenspan and the Fed spoke of irrational exuberance in tech stocks in 1996 without acting, and after the tech bubble burst cut rates to 1%, then to zero after the housing bust.” (said 2009). Verdict: mostly true. Reliability API, claim c_180658115cb7, method 0.1.0+c876030c. https://epistacklabs.com/claims/c_180658115cb7