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.
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