Greenspan to Explain What Caused the Financial Crisis (Hint: It wasn't his fault)

This should be a thigh slapper.

Former Federal Reserve Chairman Alan Greenspan, who pumped billions of dollars into the economy and kept  interest rates artificially low, thus causing the housing bubble, has a new theory: The crisis wasn't his fault.

Greenspan was interviewed last night at New York University to mark the establishment of the Alan Greenspan Chair in Economics.

The chair, amazingly enough, is being funded by hedge fund operator John Paulson, who made billions shorting the housing bubble created by Greenspan. Paulson conducted the interview in an auditorium named after him, the John A. Paulson Auditorium in Tisch Hall at  the NYU Stern School of Business .

Seating for the event, near Washington Square, was extremely limited, but our spies were there and reported that Greenspan announced that he will have a working paper coming out soon at the Council on Foreign Relations, which will lay out his theory behind the cause of our current financial mess.

According to Greenspan's new theory,  note our spies, it seems he blames the crisis on a lack of investment in "illiquid" assets in relation to cash flows. This ratio of "illiquid" investment to cash flow fell to its lowest level in the first in quarter of 2010. If this ratio remained at or around its historic norm, Greenspan claimed the unemployment rate would be much lower.

Uh no kidding Alan, when you have balance sheets structured whereby you borrow short-term and lend long-term, you are always going to be vulnerable to a run on the financial institutions using such a structure. But Alan that was the sideshow, if the balance sheets were properly structured and you were printing money the way you were, the crisis would have still occurred at the points where the money flowed to. It's always the money printing and where it flows to that distorts the economy.

As far as comments on Bernanke money printing operations, Greenspan's comments were subdued. He said QE1 was essential, but didn't discuss QE2.

End note: Greenspan is now a consultant to Paulson.