Greenspan – Housing Bubble Not My Fault!
Just so you are not confused, the Federal Reserve had absolutely, positively nothing to do with the housing bubble. That is according to an editorial Alan Greenspan wrote in the Wall Street Journal. It was all due to China and other emerging markets. The Federal Reserve had nothing to do with it.
Now I am not saying these factors were not important, but does not Greenspan sound like a 4 year old trying desperately to convince Mom that he did not throw the dog food all over the kitchen floor? It was the dog’s fault that he had that much food near the kitchen. Really…
Look, I am still a fan of Alan Greenspan, but he is not perfect. Mistakes were made. But in this day and age it seems that politicians can not show any weakness. If they admitted mistakes early and often, they are still human you know, then they would have a chance to be much more successful (and respected) in the long run.
A surge in growth in China and other emerging markets led to an excess of savings that pushed global long-term interest rates down between early 2000 and 2005, Greenspan wrote in an article. That caused mortgage rates and the benchmark Fed-funds rate to diverge after moving “in lockstep” from 1971 to 2002, he said.
The article is part of the former Fed chief’s defense against charges in books such as “Greenspan’s Bubbles” by William A. Fleckenstein that his policy of keeping rates too low for too long inflated the housing bubble. The collapse in the U.S. subprime-mortgage market led to about $1.2 trillion in writedowns and the bankruptcy of Lehman Brothers Holdings Inc.
“Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have prevented the housing bubble,” Greenspan said. via Bloomberg.com.
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Comment by Corey K on 11 March 2009:
If you believe this, I have got a bridge in Brooklyn I would like to sell you. What about the derivatives market? How about all the money that the FED auctioned off on the cheap to banks and lending institutions under Greenspan’s direction? How about his encouragement to these banks and lending institutions to not only engage in sub-prime lending but then to package as many of them up for purchase as automatic AAA rated paper? So many people now are avoiding foreclosure with a simple phrase…”Produce the note”? Why did Sec. Clinton go over to China and tell them they would get imminent domain as collateral for all the mortgage packages they bought up that are worthless now?
Comment by Lakewood Ranch Real Estate on 11 March 2009:
Of course it’s not…
Just like the banks and the buyers who bought homes they couldn’t afford, Greenspan doesn’t want to take any responsibility….
Comment by Chandler Real Estate on 13 March 2009:
Great post!
There is a fundamental flaw in Greenspan’s ideology as he has admitted in the past. He thought that markets and shareholders would work to correct imbalances and inequities in the market and that the banks would act in the long term interest of their shareholders.
The banks did act in the interest of their shareholders, just in the short-term quick gain interest.
Greenspan’s reliance on markets to completely correct themselves represents a certain polar extreme in perspective. In some sense, this ideology is the idea of perfection of how markets operate. Unfortunately, markets are not any more perfect as the men that created them. There has to be some level, even if small, of a regulatory or overseeing hand to make sure the market doesn’t approach extremes of behavior.
Greenspan deserves a lot of the credit for the housing crisis during his tenure. I don’t believe many take him very seriously when he tries to place the crisis at others’ doors. A final point though – if people believe that this just came about because of actions by the Fed and the U.S. Congress in deregulating markets, it would oversimplify the impact of the culture of greed and self-satisfaction that took root in the U.S. before and during this time.
David Lorti
Comment by Woodstock real estate on 13 March 2009:
It doesn’t matter if Greenspan was at fault or not. As a country we need to focus on where we are heading into the future, not what happened in the past. The media wants to blame everyone for this. Bush, Clinton, have been getting hammered as of late. We need to make sure this doesn’t ever happen again, not rehash the past. What’s done is done.
Comment by Mark Madsen on 14 March 2009:
Bottom line, we were given mortgage programs that allowed just about anyone to buy a home. It seems like I use to receive 50 faxes a day from my wholesale lenders promoting “stated income – No 4506″ down to 600 fico scores, limited trade line requirements, 100% financing, “we don’t verify rent” and so on….
I’m not saying that it is the banks’ fault for giving us these types of programs, but it sure didn’t help.
Comment by Investment Property Rumours on 16 March 2009:
Not Greenspan’s fault?! Hold on a moment while I get back up off the floor from laughing so hard and falling off my chair…..
Maybe not ALL Greenspans fault, but the fact that he has a large part in steering the economy of many countries, not just the USA with what he says, perhaps some kind of acknowledgement might be an idea. Aside from that, even if knowing who’s fault it actually is, how about coming up with an answer on how to fix it?
Comment by judy on 30 March 2009:
Nice post. On foreclosure: I like the produce-the-note strategy. I live in Tampa and know one person he helped, and it actually worked. They did not get the entire home paid for, but they got terms adjusted to be favorable and they were able to avoid foreclosure. It really varies by situation and probably the laws of your state on how far this goes. This site has all the videos they have done. Watch all the videos here:
http://www.tinyurl.com/producenotevideo
Comment by Vikas on 13 May 2009:
Alan Greenspan said falling home prices in America are “nowhere near the bottom”.
But i am not sure about it. Now its hard to believe on such statements
Comment by Cynic on 15 June 2009:
They all knew exactly what they were doing.
This guy has worked it out.
http://www.freelists.org/post/harbor/Ron-Paul-No-Go
I say GreenSpan is guilty of treason, lock him up with Madoff and throw away the key.