Re: Inverted Yield curve for bonds?
After pondering your post, I came up with the following:
I think Greenspan was saying that banks' role as more or less exclusive financial intermediaries formerly caused the problem.* When rates inverted, banks slowed traditional lending, in favor of alternative money making strategies (such as the one you pointed out).* These alternative money making strategies did not provide adequate capital to business, so the economy slowed.* This happened regardless of whether banks made money on the alternative strategies or not.
Now a days, there are so many alternative ways for businesses to raise money, that it doesn't matter as much whether banks slow traditional lending during periods of inverted yield curves.