Skip to comments.Who, Me? Yes You!(Schiff:'Greenspan fathered the housing bubble/crisis' )
Posted on 05/15/2009 8:10:42 PM PDT by sickoflibs
When, during the invasion of Iraq, the United States Government issued its famous deck of playing cards with the 52 arch villains of the Iraqi police state, Saddam Hussein's face adorned the Ace of Spades. If the Obama Administration wanted to engage in a similar public relations campaign for the real estate crisis, the top card should be reserved for Alan Greenspan.
Yet in a speech this Tuesday before the National Association of Realtors, Sir Alan "the-bubble-blower" claimed that his low interest rate policies in the early and middle years of this decade had no effect on mortgage rates or real estate prices. As a result, he claims no responsibility for the subprime mortgage crisis. But even current Treasury Secretary Timothy Geithner, who shared interest rate policy responsibility as governor of the New York Fed during the Greenspan regime, recently admitted that overly accommodative policy helped inflate the bubble. So what does Greenspan know that everyone else doesn't?
His primary defense is that mortgage rates were a function of long-term interest rates which were simply not responding to the movement in short term rates, which he did control. While it is true that the flow of capital from foreign creditors with excess dollars did keep long rates low despite rising short rates, this "conundrum" was not the leading factor in the housing bubble. Although rates on thirty-year fixed rate mortgages are based on long-term bonds, by 2005 such loans had become an endangered species. The housing bubble was all about adjustable-rate mortgages with 1-7 year teaser rates primarily based on the Fed funds rate.
The rock bottom teaser rates, permitted by the 1% Fed funds rate, were the primary reason that many home buyers were able to qualify for mortgages they couldn't otherwise afford, and in turn, to bid up home prices to bubble levels. By pushing down the cost of short-term money, the Fed enabled homebuyers to make big bets on rising real estate prices. Without the Fed's help, few borrowers would have "qualified" for these risky mortgages and real estate prices never would have been bid up so high.
Greenspan expresses exasperation now, as he did then, that his careful nudging of interest rates higher by quarter point increments did not translate into corresponding increases in long-term rates. Unfortunately, according to Greenspan, the markets would not cooperate with his wise guidance, and to his dismay, mortgage rates fell despite his best efforts. As they say in Texas, this dog will just not hunt. If the "measured pace" of his quarter point hikes were too slow to produce the desired effect, why didn't Greenspan jack up the pressure? With interest rates far below the official inflation rate for many years during the bubble, he certainly had plenty of room to maneuver. The claim that he was unhappy results of his rate hikes, despite his having done nothing to adjust that policy, is ridiculous.
In addition to his colossal errors on interest rate policy there were many other ways Greenspan blew air into the real estate bubble. One example was what the market called the "Greenspan put." By creating the perception in word and deed (since proven accurate) that the Fed would backstop any major market or economic declines, lenders became more comfortable making risky loans. In an often quoted 2004 speech, Greenspan went so far as to actively encourage the use of adjustable-rate mortgages and praised home equity extractions for their role in contributing to economic growth. In fact, rather than criticizing homeowners for treating their houses like ATM machines, he often praised the innovative ways in which such homeowners were "managing" their personal balance sheets. Greenspan was as much a proponent of leverage for homeowners on Main Street as he was for bankers on Wall Street.
The bottom line is that Greenspan fathered the housing bubble and now he refuses to acknowledge kinship of his wayward child. His denial of responsibility is an act of stunning bravado, and is a testament to his ability to turn even the simplest of situations into an impenetrable tangle of theories and statistics. The private sector jokers who now hold top dishonors in our pack of economic villains are easily trumped by the Maestro. The fact that Greenspan still has any credibility shows just how little understanding the general public, including Wall Street and the media, actually have about this crisis.
If you realize both parties in Washington think our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus who is going to get elected in Washington and cut a few taxes and spend a few trillion and jump start the economy, and get our lost money back, this list is not for you.
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Where would Reid, Dodd et al be on those cards?
"The fact that Greenspan still has any credibility shows just how little understanding the general public, including Wall Street and the media, actually have about this crisis."
This is so true. I dont even hear this on mainstream conservative talk radio or from conservatives that depend on it.
They would be Kings. And Barney Frank would be a Queen.
>>Where would Reid, Dodd et al be on those cards?
>They would be Kings. And Barney Frank would be a Queen.
Maxine Waters could be another Queen.
Hm, it’s a good idea.
I wonder how much start-up capital I’d need...
Collecting his payoloa in a speaking fee. The realtor's spent 57++ million lobbying for easy credit and no down payments the past ten years. So you can thank them for the falling value of your property.
So how about we stop the campaigning and be serious about it? (not you org, them)
Well that's certainly the talk radio main theme. They beat that sole theory to death. CRA certainly made the problem worse and got democrats to live and vote in republican districts but....
1) Many more buyers bought property they couldn't afford assuming the bubble was real (guess why?) than those under CRA, many middle class good earners lured into investment because of bubble there were assured was REAL ECONOMIC GROWTH!
2)Bush promoted CRA goals and took credit for them,
3) Bush promoted illegal Hispanics who were the big beneficiaries of CRA.
During the peak of the ‘prosperity “ bubble, I was running out of patience discussing this, particularly with elderly folks who blindly thought Greenspan was good for the country. He always seemed to me to be a grandstander who loved to see his name in the press, and he should be made to acknowledge his wayward child publicly.
I don't see them posting anymore.
“1) Many more buyers bought property they couldn’t afford assuming the bubble was real (guess why?) than those under CRA, many middle class good earners lured into investment because of bubble there were assured was REAL ECONOMIC GROWTH!”
The “bubble” was artificially expanded not just because of the low rates but also because of government distortions from mortgage deductions and coercion by regulators that forced bankers to qualify many more risky applicants for home mortgages.
Remember those “toxic” securities? The regulators permitted the bankers to repackage the risky loans into securities instruments and derivatives. Remember the screams from European investors (both private and governmental) when they saw their value evaporate back in Fall of 2008? They (and many of us) were suckered into buying mutual fund shares that included these toxic assets.
Barney Frank, Chris Dodd, Fannie May, and Freddie Mac are the biggest perpetrators of this horrific mess. We need to keep the heat on them for lying about their part.
I am convinced that the leftists purposely planned the hysteria as the “October Surprise” that strengthened Obama and caused John McCain to flounder.
No, the democrats wanted more voters moving into republican districts and Bush helped them and the inevitable crash came before Bush got out which was justice even if it led to very bad things (democrats in power.).
To much bad has happened for me to go with the political spin.
It’s good to see someone else realizes the CRA was not the main culprit.
It was so obvious that people were overpaying for property and borrowing too much against their homes. So, when talk radio started blaming the CRA, I did some research myself. And I found out the real story was very different.
Then I had to debate with people (in person and online) over that CRA theory. My point was: Maybe the CRA is a bad policy; go ahead and repeal it. But, it’s not the source of the blame for the mortgage crisis.
The interest rates dropped too low by the Fed led to a housing bubble. And everyone (Main St. AND Wall St.) went nuts buying and selling overpriced property and bad securities. I thought the stock market was a good comparison, and I tried to explain it that way.
But, no one would listen to little ol’ me. ;-) So, I was so glad to see the Peter Schiff video (of his lecture at Von Mises) because here was someone, who was in favor of small gov’t and who’d predicted the crisis, saying exactly what I’d been trying to explain. He compared the mortgage crisis to a stock market crash. And he never mentioned the CRA. He explained it much better, though, and he was more fun to listen to. ;-) I’ve been sending the video link around.
The FED fed the bubble, and its near-zero fed funds rate made it an easy decision for managers to put their money into real estate at 6% instead of overnight loans at .5%.
Malinvestment? You bet it is.
Read Tom Woods' best-seller, Meltdown and watch his 50-minute talk on BookTV. It complements Schiff's videos very well.
There is plenty of blame to go around ... but, yes it is true that Greenspan coulda stopped it in its tracks.
I despise Greenspan but I think part of the resaon for low interest rates was to goose the economy to accommodate the Iraq war and the massive expansion of government spending fostered by Democrats and Republicans.
GWBush knew that a humming economy allowed the public to support the Iraq war and this was impressed upon Alan Greenspan. Only problem was that the economy was based on house building and flipping and taking money out of houses. Plus trillions of dollars of credit default swaps and other Wall Street monkey business
Does the 57 million include the money from the mortgage broker’s lobbying effort?
Agree totally, and the veritable computerized archive of tiresome talking points is Sean Hannity. Listening to him can be a very wearing experience. And hearing his perpetual guest Karl Rove, even though I’m not one who demonizes him, is even more wearing. They’re ALL still playing partisan politics, while avoiding serious responsibility for this crisis. The Repubs just want to get back in power, without quite knowing what they’ll have to do to get there, and still casting about for a pantheon of “fresh faces” with a “new message”. NONE of them least of all the new RNC hiphop Chairman, seems willing to throw Bush under the bus, because they’re still playing the saving grace card of Bush “keeping us safe”. Our system of “elected representatives’ is not going to be scrapped anytime soon, so the ONLY thing that’s going to make an impression on both a new population of Republicans in the upcoming election cycle, is to let them know that WE dictate policy for them, NOT them for us. Demanding ‘accountability’ is also not an answer, because the kind of spending that Bush did, and that Obama increased tenfold, SHOULD NOT BE ALLOWED IN THE FIRST PLACE.Saying we want ‘oversight’ and accountability has become a very easy thing to evade and to fudge on: they’d ALL agree to it, then appoint their own chickens to guard the henhouse.
The dramatic withdrawals of money market funds triggered the "systemic failure" argument and the initial bailout. Who controls those funds and why they were withdrawn has never been explained. The convenience of the event sure makes it suspect.
Where McCain failed and the Pubs failed was in agreeing to the bailout.
Remember those toxic securities? The regulators permitted the bankers to repackage the risky loans into securities instruments and derivatives.
Wall street followed the example of Fannie Mae and Freddie Mac. The GSE's were making huge sums and wall street wanted in.
Where have the majority of foreclosures been taking place?
why bother posting articles anymore, if the headline tells the story?
To the extent that CRA policies made the bad situation worse you have to look at idiotic Republican leaders like Bush and McCain that thought giving houses to the poor would make them vote republican. Many of the same talk radio hosts that AFTER THE FACT blame CRA for causing the problem AFTER the burst claimed GWB created a strong economy prior to the blowup of the debt bubble. See :President Bush Mortgage Speech 2002(Helping those w bad credit buy houses)
Mark Levin 2007 Flashback parody of GWB telling us how good a job he (GWB) has done getting minority homeownership, notice no place does Levin include CRA in his parody. Talk radio didnt make up the CRA theory until after the crash, before that it was all about the strong Bush economy : GWB parody "Polls show that the majority of you think the economy is in the tank. And thats despite record numbers of homeowners including record numbers of MINORITY homeowners. And while were mentioning minorities, Ill point out that minority business ownership is at an all-time high. Our unemployment rate is as low as it ever was during the Clinton Administration. Ive mentioned all those things before, but it doesnt seem to have sunk in. "
Saving the economy by removing the poor from the tax rolls and giving them a low interest(lots of new Greenspan printed money) ARM home loan to help expand the bubble was not a long term strategy. It was a "get re-elected in 2004 and to hell with the future, we can just blame someone else" strategy.
The economic meltdown is world wide, the idea that the welfare/illegal cases caused it by themselves is only believed in the talk radio vaccuum because it's what the audience wants to believe. It's pure political spin that didnt work at all last fall election.
Greenspan gave the realtors convention the speech they wanted to hear. They got what they paid for
Alan Greenspan reminds me of Nancy Pelosi. Both are senile, power hungry old bags and both are desperate to rehabilitate their images. And both are failing at that and ruining their image further
Jokers. The entire deck of cards would be 54 jokers.
Certainly true! Problem is both parties were competing for those bought votes.
GWB being president he needed politically for us to believe the Greenspan Ponzi scheme was real economic growth, very unfortunate because the presidential conflict of (political) interest kept him from protecting us(warning us to stop investing) , and long term he ended up forever with what he was trying to avoid, ‘the blame for it all,’
When the housing bubble would burst has been a constant topic of discussion since the hi-tec bubble burst. We had those discussions FR and elsewhere. The points made in 2001, 2002 are still valid.
1. The housing bubble was always called a bubble.
2. ARMs and creative mortgage products were widely criticized for depending on expectation of ever increasing values.
3. Both political parties perpetuated the housing bubble as long as possible. Realtors and mortgage firms were operating ponzi schemes and perpetuated the bubble.
4. Freddie/Fannie/ACORN/Barney/Dodd/etal were a major cause of the bubble and collapse, but not the only one.
5. Although higher than “normal” Only a small percentage of the low income homebuyers are in foreclosure.
6. The high correlation with foreclosure is alcohol, drugs, gambling, divorce, etc; those are also the correlations to many of those who lose their jobs and have financial problems.
7. There is a high correlation to those who speculated on flipping houses and lied on their mortgage applications as taught by the house flipping seminars.
8. There is a relatively low correlation to both legal and illegal recent immigrants ... except where they were names used by the flippers to hold dozens of “owner occupied” mortgages. But even with the fraud, the role of immigrants is low correlation.
There are many other facts and factors in the complexity. There are also a lot of mis-statements of fact in tyring to find scapegoats.
Of course, if you look back in FR, you’ll see I was relatively bullish on the housing bubble ... for a few years of it.
It's really telling that the partisans jump on the CRA as the prime cause of the mess, as if it was just the sub-prime mortgages we had to worry about.
And then, most of the subprime mortgages weren't even made under the CRA. I agree with your post. The CRA is a terrible policy (especially in its current form), and it should be repealed. But, the talk show pundits jumped on it as if it were the biggest culprit. They led many people to believe it was the main reason for the crisis. They had an opportunity to explain to the public about the Fed's role in the crisis and to drive that point home, but they missed it.
This is a good discussion. I’ll be back to comment more in a day or so.
The Five Stages of Collapse
Saturday, May 16, 2009 8:18:13 PM · 80 of 105
Southack to Lazamataz; SAJ; Toddsterpatriot
Laz, the author has got it wrong. The economy is correcting a fundamental problem: global oversupply.
The planet makes too many cars...excess manufacturing capacity.
There are 19 million vacant homes in the U.S. alone...surplus housing capacity.
There are too many shopping malls. Overcapacity.
There are too many cargo ships. There is too much office space (14% vacancy rates in the U.S. alone).
For centuries B-schools have been insisting that the path to prosperity was to make things, but not once did schools or the news media mention what would happen if we had too many factories, too many offices, too many homes...global overcapacity.
And finally, the world made too much. The camels back was broken.
Think about it. 19 million vacant homes. Do you want to go build a house on spec for an investment right now?
That would be pretty suicidal.
Do you want to build a new automobile factory? No. Again, that would be financial folly.
Well, thats the state of the entire planet right now.
And the Market responds to that excess capacity with deflation.
Shipping prices, for example. Phenomenal numbers of giant new ships have been built. Last year the shipping rate for oil on a supertanker from Saudi Arabia to Japan cost $177,000 per day. Today, the shipping rate is $16,000.
At the high end, the Ferrari Premium is gone. Theres no more waiting list to buy a prancing horse, and no more above sticker pricing.
At the low end, the Smart Car is being discounted 27%.
Insurance rates are down. Deflation.
Computer prices are down. Deflation.
Cell phones are cheaper, and cell phone service is less. Deflation.
Oil has fallen from $147 / barrel last year down to the $50s today. Deflation.
Massive credit contraction. Massive debt destruction. Massive wealth losses. Massive asset price drops.
Boats are cheaper. Planes are cheaper. Motorcycles are cheaper. 4Wheelers are cheaper. Homes are cheaper. Stocks are cheaper. Salaries are down. Wages are down. Hours are down. Overtime is down. Bonuses are down.
And we will have deflation until the excess capacity is removed from the economy.
Doesnt matter if governments fight the above; its inevitable. It can be delayed, not stopped.
And thats not going to bring down our government. Mugabe is still in power in Zimbabwe. Governments dont fall easily.
And cultures survive long after governments fall. Japans government lost WW2 and still maintains its distinct culture.
The loss of easy credit and the loss of easy money real-estate and stock/bond schemes will happen, of course, but they will happen as part of the Markets response to global overcapacity...not due to cultures or governments falling.
And yes, the public will return to the basics instead of returning to escalating the keepupwiththeJoness wars.
You may be sick of libs, but I'm sick of your baldfaced lies against Bush.
You disgust me with your utter dishonesty. You are contemptable.
WOW, that really sets the GWB record straight.
What really bothers you is so many freepers say the same points, they still remember GWB saying “See you at the signing statement”, on illegal amnesty and he sent out poor Tony Snow to try to convince Rush listeners that illegals were Republicans.. You also hate that we can Google Bush on affordable housing.
And don't forget the UAW bailout as part of TARP1, a last fond memory.
And don't forget the UAW bailout as part of TARP1, a last fond memory”
Yes that Pant O Load has left me with many fond memories. I wonder if he remembers the whitehouse phone system crashing? His liebury should be a dog house beside the Clinton Trailer/Porn shop.
Perhaps the disagreement is in the use of the word “promoted” with respect to illegal aliens as I don’t think GWB was ever that direct and honest about his intentions.
I think “aided and abetted” illegal aliens might be a more accurate description.
No, what bothers me are your repeated, bald-faced lies. Such as above...where you lie about "amnesty."
Bush proposed *penalties* for illegals. Liars such as yourself, however, squealed that such penalties were too light, and that because the $5,000 fine and "back of the line" citizenship processing were so weak that they amounted to a defacto "amnesty" for illegals.
But your imagined "amnesty" is a far cry from Bush's actual *penalties* for illegal immigration, and your extrapolation of your imagined "amnesty" into being able to slander Bush with the "amnesty" label is wholly dishonest.
Which is your entire character. As shown above, you are a congenital liar.
Nothing will stop you from lying again. No facts need get in your way. No stumble on your part dissuades your pursuit of perfidy.
You lie. You slander. You lie again. You build future lies on the lies of your past.
You have no redeeming qualities. You mislead and slander and waste the time of otherwise good and well-intentioned people.
$5000 in fines ??? It was $2000 but meanwhile they would cost the taxpayers 5-10 times that PER YEAR, and the word ‘fines’ is a joke, it was a tiny fee. So was the so called requirement to leave, here's a list of all the loopholes and another of the costs:
You disgust me with your utter dishonesty. You are contemptable.
You win the prize for illiterate thought.
Now go back to your making up lies about someone else making up lies. Have you always been the type to drink the gape punch by the gallons???
$2,000 is a large fee for someone earning Minimum Wage, but the point is that you *know* that the fine was in Bush’s proposal...and in spite of knowing that the punishment for being illegal was there, you continue to lie that Bush was promoting “amnesty” as if you didn’t know that “amnesty” means “no punishment.”
And it is by your own words that I find you entirely dishonest.
You disgust me.
You are not going to make us like GWB any better by defending the 2007 amnesty bill, which really did a lot of damage to what was left of the Republican Party.
Try mentioning his supreme court appointments. Talk about how he kept us safe from terrorist attacks.
You don’t have to like GWB. It’s a free country. But if you lie repeatedly, knowingly, about him, yeah, that’s going to disgust me.
Interest rates didn’t cause the housing bubble, it was making loans to people with nothing down and no income to repay the mortgages!
Demanding 20% minimum down and no more than 30% of income for payment would have eliminated the entire problem.
Or better, just mention supreme court appointments minus Harriet Myers. There is a reason Obama is trusted (polls) far more than GWB and republicans on national defense and it is not because Obama is a great leader.
Defending Amnesty is a great strategy. it shows you(Southhack) will say anything to defend Bush