Greenspan’s ‘brilliance’ pays off for Pimco

Maybe Alan Greenspan hasn’t been totally clueless about the housing bubble after all. Since coming on last year as an adviser, Greenspan has made bond investor Pimco “billions of dollars,” Pimco co-investment chief Bill Gross said. Gross, speaking at a conference in Los Angeles, attributes the gains to Greenspan’s “brilliance in terms of forecasting the potential for exactly what happened” in the past year’s global credit crunch, Bloomberg reports.

Though Pimco has performed well recently, Greenspan’s reputation for brilliant foresight has been eroding since house prices stopped rising back in 2006. Since then, Greenspan has been castigated for failing to crack down on aggressive lending practices while he was chairman of the Federal Reserve, and for keeping interest rates too low earlier this decade as house prices took off. He has responded recently to the effect that the U.S. wasn’t alone in having a housing bubble and that there’s no evidence central bankers would succeed in popping any asset bubbles anyway.

“Regulators, to be effective, have to be forward-looking to anticipate the next financial malfunction,” he wrote in a March opinion piece in the Financial Times. “This has not proved feasible. Regulators confronting real-time uncertainty have rarely, if ever, been able to achieve the level of future clarity required to act pre-emptively.”

In the same piece, Greenspan himself admitted that a fair amount of future clarity had continued to elude him on how the housing bust would play out. “I have been surprised by the fierceness of investors in retrenching from risk since August,” he wrote in March.  But not so surprised that he couldn’t offer a few helpful pointers to a client.