Conventional wisdom is quickly con­geal­ing around the idea that Alan Greenspan, pre­sid­ing genius of the dot-​conomy, is to blame for the sub­prime mort­gage mess. The argu­ment, artic­u­lated by Steve Forbes and others, goes like this: by low­er­ing short-​term inter­est rates to near-​zero in the early years of this decade, Greenspan encour­aged the spread of adjustable-​rate mort­gages (with low ini­tial “teaser” rates that rise after three, five, or seven years) and ill-​advised lend­ing practices.

In his new book The Age of Tur­bu­lence, Greenspan offers this defense against these critics:

I believed then, as now, that the ben­e­fits of broad­ened home own­er­ship are worth the risk. Pro­tec­tion of prop­erty rights, so crit­i­cal to a market econ­omy, requires a crit­i­cal mass of owners to sus­tain polit­i­cal support.

It’s hard to care much about the Forbes/Greenspan fight, but Greenspan’s response is intrigu­ing on its own.

What’s inter­est­ing is that Greenspan gives a polit­i­cal defense, not an eco­nomic one, for encour­ag­ing home­own­er­ship. The right answer—i.e. the answer Greenspan prob­a­bly would have pro­vided in tes­ti­mony to Con­gress were he still Fed chairman—is that Greenspan wanted to lower inter­est rates because he thought that lower rates (or increased home own­er­ship) were impor­tant to help the econ­omy along. He could have said, for instance, that lower inter­est rates were nec­es­sary to scare off defla­tion. But he didn’t say that. Instead he defended the policy on polit­i­cal grounds, saying that he wanted to encour­age home buying to build a con­stituency of home owners.

Why is this sur­pris­ing? Because the Fed­eral Reserve Board is not sup­posed to be a polit­i­cal instru­ment, except in the broad­est sense. This is how the Fed defines its duties:

1/ con­duct­ing the nation’s mon­e­tary policy by influ­enc­ing the mon­e­tary and credit con­di­tions in the econ­omy in pur­suit of max­i­mum employ­ment, stable prices, and mod­er­ate long-​term inter­est rates
2/ super­vis­ing and reg­u­lat­ing bank­ing insti­tu­tions to ensure the safety and sound­ness of the nation’s bank­ing and finan­cial system and to pro­tect the credit rights of con­sumers
3/ main­tain­ing the sta­bil­ity of the finan­cial system and con­tain­ing sys­temic risk that may arise in finan­cial mar­kets
4/ pro­vid­ing finan­cial ser­vices to depos­i­tory insti­tu­tions, the U.S. gov­ern­ment,
and for­eign offi­cial insti­tu­tions, includ­ing play­ing a major role in oper­at­ing the nation’s pay­ments system

Of course, as every­one rec­og­nizes, the Fed isn’t above stoop­ing to help a sit­ting pres­i­dent who finds him­self in an eco­nomic pinch. That’s why even more inter­est­ing than Greenspan’s polit­i­cal inter­ven­tion is the par­tic­u­lar policy he wanted his con­stituency of home owners to defend: prop­erty rights. Prop­erty rights! Here’s the astound­ing chain of logic at work in Greenspan’s defense:

Cap­i­tal­ism depends on prop­erty rights → Home owners are more likely to sup­port prop­erty rights → Cap­i­tal­ism (i.e. the econ­omy) needs more home owners → We should lower inter­est rates to pro­mote home ownership.

The prob­lem­atic step is, obvi­ously, moving from the second term to the third. Sure, it’s likely that home owners would favor cer­tain kind of prop­erty rights, but does Greenspan really think that they’re more likely to sup­port pri­vate prop­erty gen­er­ally? Are home­own­ers less likely to down­load pirated MP3s or to buy forged Prada hand­bags? Are renters more likely to be unre­con­structed Marxists?

Strangest of all is that Greenspan thinks that the idea of pri­vate prop­erty is seri­ously under attack in this coun­try. His anti­quated defense of pri­vate prop­erty would seem even odder had the NYT not just reported on his early friend­ship with Ayn Rand, whose father’s phar­macy was seized by the Bol­she­viks in 1926. Still, it’s hard to believe he thinks that Soviet-​style col­lec­tiviza­tion is such an imme­di­ate threat to his beloved market economy.

Though come to think of it, there is one place where prop­erty rights have had a hard time of it lately. In 2005 the U.S. Supreme Court decided the Kelo emi­nent domain case, which allowed the New London city gov­ern­ment to seize pri­vate prop­erty to help spur… hey wait: eco­nomic development.