Greenspan: The Fed Can Not Stop Bubbles, They Result from ‘Euphoria’

GREENSPAN: "Look, what we say at the Federal Reserve, frankly, was that a necessary condition for the existence of bubbles, and probably a sufficient condition, is a period of long-term economic stability with inflation at a minimum. The reason we considered that a problem at the Fed was that inevitably leads to bubbles. It's human nature, you cannot avoid it. You can try to defuse it, you'll fail as we did in 1994 we tried to defuse it, there was a boom -- what is what we called bubbles back then -- and we failed for reasons I have discussed in my current book. But you can't break -- unless you break the back of the actual euphoria that generates the bubbles, you're bound to fail. And the result of that is something that is outside the hands of the fed and of issues I discuss in the book, there are other things we can and should do."
KERNEN: "Well, right now, we all think that -- you know, I think the people in the Fed right now feel like the onus is on them for every aspect of our life. I think that's incorrect at this point. they certainly think they're capable of running things and defusing bubbles. And I think they think they're capable of not causing bubbles. I don't know if they have a firm grasp on any of that."
GREENSPAN: "I'm not in a position to answer that question."
SORKIN: "Did you read, Chairman, do you read the minutes that came out from 2008 around the financial crisis, from the Fed?"
GREENSPAN: "Yes."
SORKIN: "What's your take on that?"
GREENSPAN: "I don't comment on such issues."
QUICK: "Chairman Greenspan, it is five years since the market lows. You're the person who first talked about irrational exuberance way back then. And I just wonder, given how far we've come, do you worry we're getting into that territory again?"
GREENSPAN: "As far as the stock market is concerned, no. That's not to say we may not be near highs but you don't get the buoyancy, the type of movements and what I would call the equity premium that characterizes a bubble or euphoria. It's no the that many years ago, two or three years ago, we were at the highest level of equity premium -- which as you know is a rate of return on equity that the markets require -- we had had the highest equity premium in 50 years. It's come down a bit."