Greenspan lashes out again
Former Fed chief Alan Greenspan is back on the warpath. A day after he raised eyebrows by insisting in the Financial Times that central bankers were powerless to prevent the housing bubble, Greenspan tells The Wall Street Journal that he is being unfairly singled out for criticism for policies he believes have yet to be discredited. “I do take it seriously if my peers think I have misstated the facts,” he tells the Journal. “But where’s the evidence? Too many people make accusations by assertion. I think it’s improper.”
Fair or not, the criticism of Greenspan centers on the notions that he was too quick to reduce interest rates and that he was uncritically supportive of so-called financial innovations such as derivatives and adjustable-rate mortgages. Greenspan’s 2004 speech extolling the virtues of adjustable-rate mortgages looks particularly imprudent now, in the light of rising delinquencies on those loans. Greenspan, however, prefers to focus on his efforts a week later to explain that he thought plain old 30-year fixed rate mortgages were okay too. The Journal’s Greg Ip quotes Greenspan saying he finds it “profoundly disturbing” that everyone remembers the speech and not the explanatory comments.
Of course, it’s just that sort of posturing that drives Greenspan’s many critics to distraction. Greenspan’s comments in the FT prompted a point-by-point rebuttal from Yves Smith at Naked Capitalism, one she concludes by comparing Greenspan unfavorably with the late President Richard Nixon. “When Richard Nixon tried to rehabilitate his reputation, he didn’t dispute the horrific errors of judgment he made while in office,” she writes. “He instead made useful, substantive intellectual contributions on other fronts. But Greenspan is an ideologue and intellectually bankrupt, so this option may not be open to him.”
Greenspan never had an MBA.
He cannot defend his policies in a debate.
Can he?
Will he?
He was and is a politician.
Greenie is ot wwelcome in my foxhole neither aRE his buddies
hILLbILLY.
aSK GREENIES WIFE????
During Greenspan’s tenure as Fed Chairman, he could not have predicted that by lowering the interest rates freely during the early century, he would have created the bubble. Although, it could have been avoided with all too careful research, there was probably a greater risk during the time when interest rates were low. We can blame Greenspan all we want, but it’s the bankers who loaned out all the money to the consumers who didn’t have the credit to repay their debt. It is the bankers who are at fault here and we’re trying to bail them out, as to not hurt our already failing economy. If we were not to help certain banks out, we run the risk of bank failures and the loss of massive amounts of capital. Although Bernanke could reduce rates more aggressively, he’s what we got and we’re just going to have to live with it.
Also, on a separate note, the Fed does not simply “create and print” money. It bolsters, or reduces the money supply by selling and buying US Treasury Notes, so please, stop being so ignorant to the fact and realize that inflation is not so simple to control!
To be fair to Mr.Greenspan,one has to admit it is the Bankers who should have exercised more caution in disbursing credit when rates were brought down to unusually low levels.They went overboard in lending to a rising housing market when everybody knew house prices were going up too fast and too far.To keep lending they kept innovating credit derivatives and lent as if the rates will remain perennially low.Now all types of influential persons blame Greenspan.The Banking industry in U.S. needs a drastic overhaul
Facts:
1) Controlled Capitalism: Developed countries are ‘controlled’ capitalisms. The ‘control’ takes many forms (e.g. rules, laws) but is also in the form of ‘dilution’ of the currency. When the Fed lowers interest rates it also instructs the treasury to print more money (thereby diluting the currency) and distributes this money to the banks, which can afford to borrow more at the lower rate. The FED can increase or decrease the dilution rate, but dilute it must! Thus, inflation is guranteed. However, by ‘deciding’ when to print more or less is the only way the Fed can ‘control’ the movements of money.
2)Subprime: The ‘Subprime crisis’ is not related to this (interest rates). Actually, it was just Wall street finding out yet another way to make money off of people’s greed 
By using complex arithmetic (derivativs, securitisation), they could fool people into believing they can invest for high return and low risk. So the greedy fools invested, -Wall Street got fat skimming part of the investment as fees, and the average ‘cab-driver’ was happily surprised that he could get a loan for a million dollar home although he couldn’t even get a credit card! Ideally, we should let the investors fight-it-out with Wall Street for having decieved them. But Wall Street also spent large sums of its gains to pay lawyers who made sure you cannot sue them (investors didnt read the fine print). So now, except for fools like Bear Sterns, most Wall Street brokers are enjoying their previous gains, and probably thinking about new ways to feed off of greed.
3)Government Action: In true capitalism (free market), such behavior would be punished ‘freely’ too. But in ‘controlled capitalism’ the elected government is tempted to rob Peter to pay Paul. Instead of trying to ‘expose’ how Wall Street fooled the investors, government robs tax payers to pay defaulters and investors who lost money. In a democracy it even works! The real culprits are neither regulated nor punished nor exposed.
4)Greenspan? : Greenspan had nothing to do with any of this. He lowered interest rates to please little Bush (because daddy Bush lost an election when Greenspan didnt lower the rate in time). Greenspan is not really clever. Economics is not a science like physics or chemistry. Economics is little more than trying to model what happens in reality with simple equations that contain lots of assumptions (fudge factors). The reality of the economy is far far more complicated than any economist, whose skills in pure mathematics is usually limited, can ever understand or predict. So it is naive to say Greenspan was either ‘great’ or ‘bad’, -he just did his job with the simple understanding he has and the few tools he has (print more or less money). Sometimes it worked, sometimes it didn’t. Leave him alone (and hope he will shut up and go back to being an English major and write romance novels or something )
Bob Woodward stated Alan Greenspan, who served as Federal Reserve chairman for 18 years and was the leading Republican economist for the past three decades, levels unusually harsh criticism at President Bush and the Republican Party in his new book, arguing that Bush abandoned the central conservative principle of fiscal restraint.
While condemning Democrats, too, for rampant federal spending, he offers Bill Clinton an exemption. The former president emerges as the political hero of “The Age of Turbulence: Adventures in a New World,” Greenspan’s 531-page memoir, which is being published Monday.
Any Republician can point fingers at Democrats, but can they reduce the deficit? I don’t think so. Vote for Change, Change is Good, Change is Positive.
I don’t know how anyone can have a good thing to say about old Greenspam. He killed a lot of the dot.com’s with his infamous “irrational exhuberance” speech, can anyone say “Long Term Capital Management” bailout, taking the Fed Funds rate to 1% and leaving it there for over 2 years. I don’t think anyone that has posted on this site, at one point or another, wasn’t hurt by some of his absolutely stupid moves. The best part of it is he continues to open his big mouth from time to time and effect the markets. Hey Greenie, just go away, o.k.
Next problem, they jerk we have now as Fed chairman, doing the exact thing that Greenspam did, manipulating interest rates lower so his Wall Street buddies don’t get his as hard or not get hit at all. As bad as Greenspam was, Bernanke is 100 times worse. Hey Ben why not go bailout another hedge fund for Wall Street investment bank to the tune of Billions upon Billions, and keep cutting interest rates so the little guys really are the ones getting hurt. There is no such thing as “FREE” money although old Ben Dover seems to think there is.
I thought the bottom line was that “SA, of Needham, Massachusetts” is always right.
The world is feeding the Americans or the Americans are feeding the world? The economy of the world grows when US consumers are spending. When they start to spend less, the world feels the pinch. Who’s to blame? Stop spending more than you save. Stop borrowing more than you earn. Throw the credit cards away. Drive less. Last but not least, stop showing your weekly oil inventory, the report do more harm than good.
Greenspan…aka Bubbles the Chimp
Take it from Cheetah who knows better than to sell all his bananas to someone that can print dollars whenever he wants.
The bottom line is that the American middle class is spending simply way beyond it can afford to do so. Imagine that an American family with a $50k / year income has an Audi or a BMW leased for $500 a month, lives in a $400k house with a mortgage of $440K, spends $10k on fun and frolic every year and has zero savings. These patterns of spending can only continue till the world funds them and we have irresponsible fiscal policies that emphasize on wholesale consumer spending and zero savings.
A family with a similar income in Europe owns a Honda civic, drives 5 miles a day to work or takes the public transportation, lives in modest house with little mortgage or rents, spends modestly and saves a lot.
The world has borne America’s consumerism for long and it has rightly done towards its benefit but that is going to change shortly. I don’t want to delve into why, since many of the reasons are enumerated in the preceding posts.
Americans have to learn to be fiscally responsible, elect good leaders (which I don’t see happening) and most of all realize that they are living in a world where they are competing for the same resources as 6 billion other human beings.
Remember:
It takes one GWB to take America to the boonies and two to make it Africa (Just a thought!) Elect responsibly.
Greenspan was once a brilliant economist. From 2000 until his retirement he became a politician and sacrificed economics. The chairman’s job is controlling M1 and M2. To a certain extent he or she should be watching the US position in the world relative to other countries vis a vis current account balances and trade balances and a couple of other key macro economic indicators.
In 2000 and 2001 he turned away from these macroeconomic indicators and decided it was more expedient and politically beneficial to run up our debt vice pay it off. This led to foreign investment in bonds leading to having to re-issue the 30 year vice completely retiring our debt.
I could go on and on. Paul Volker was the best Chairman during my life. Alan Greenspan was the best politician in the position.
I’ll take a Chairman who takes a macro view and wants to control money supply than one who views the “stock market” as the king of any economy. Economics goes way beyond stock markets. A country’s competitive and comparative advantage in the world depends on many things but a couple of things that all economic powers have is a robust manufacturing base and logistics infrastructure.
I fear that the politicalization of the position of Fed Chairman is leading to a country where we have the rich and poor. In essence we are going backward. The banana republics in the 40’s and 50’s and 60’s, India in the 70’s, 80’s and 90’s.
When the jump becomes too great between where a person is and the next level on the economic ladder then hope and drive fades.
Greenspan lost that.
Greenspan said he “Did not get” the current credit crisis,which succinctly accentuates his economic incompetence.Never mind,he has made friends with John Paulson,the hedge fund trader who did get it and raped a 3 billion dollar salary from the sub prime misery.I feel ill.
Blame Greenspan, Blame Bush, Blame Wall Street…Blame everyone but the consumer who continues to spend more than they make. Give me a break. Now it is up to the government to bail us out of this mess. Sure brokers and bankers sold ARM loan, wall street bundled those loans into CDO’s, and eager investors bought them up seeking massive returns without any risk. Well risk reared its ugly head. Yet nobody blames the consumer. If you were subprime, you had a choice to take a fixed rate, albeit a higher rate than the ARM. Yet they chose the interest only ARM or worse yet a negatively amortizing ARM. Consumers chose the leverage as much debt for as little apyment (pain) as possible. Well it is time for the pain. Placing all the blame on Greenspan is misguided. Place the blame where it should be, on everyone involved in this mess, the consumer included!
He can lash out all he wants, but history will forever know him as Alan “Mr. Bubble” Greenspan
There’s always the alternative. Eliminate the Federal Reserve and wait for the next recession (or this one) to become a full blown depression. Anyone old enough to remember the late 20’s early 30’s?
Greenspan was probably one of the best ever Chairman of the Fed. In 1987 who was it that stopped the crash Greenspan!
It’s a real shame he stepped down for this current Chairman.
Greenspan… did you, or did you not, keep raising rates WITHOUT waiting for the ‘medicine’ to take effect? Did you pander to Wall Street and Bush’s Neo-Cons, by keeping rates at absurd levels for far too long? Doesn’t one need to genuflect and ‘Hail Caesar!!’ to get, and keep, a position in Washington?
the sky is falling. run, you don’t have time to take your possessions, hurry, please … no time to read worthless comments from people who probably have nothing better to do with their time.
2 big parts of the current problems -
a- congress allowed mortgage banks to approve loans that formerly required approval by HUD
b- congress allowed lenders to choose the appraisers - formerly chosen by 3rd parties
And what YOU don’t understand, Nick from Washington, is that Greenspan (and Bush) have disproportionate power compared with the other Fed governors (or in Bush’s case, Congress). Greenspan basically controlled the Fed’s actions just as Bush got us into the Iraq quagmire. It would have taken an extraordinarily courageous congressman to have voted against the Iraq war after his president, vice president and Sec. of Defense all claimed there were WMDs there, etc., and that a vote against the war was unpatriotic.
No, the Fed’s actions on Greenspan’s watch were essentially his, just as Bush bears responsibility for getting us to referee a tribal war in Iraq.
Strange how you let Greenspan and Bush off the hook and blame the media instead. When was “kill the messenger” ever smart?
Correct me if I’m wrong, but didn’t Greenspan serve under the Clinton Administration as well? If memory serves, the economy started to weaken in 2000. It was Greenspan’s policies that kept that recession from being worse than this one. Only difference: housing prices still went up, so people had lifelines. Who was responsible for that? Alan Greenspan.
Greenspan was a fool, his successor is a bigger fool, they aided and abetted Bush-Cheney, who have a view of the role of regulators as protecting those who commit civil fraud from penalties and liability. In the Congo they described this as a “cleptocracy”. Alan should be whining from jail.
Greenspan was just doing his job. Adjusting interest rates to cool down or pick p the economy is precisely why the federal reserve was created. How many more Bear Stearns would we have today if not for the federal reserve. And what about inflation? Anybody remember the late 70’s? Financial responsibility means you don’t get into a situation you can’t afford. Homeowners knew those loans were adjustable. Did they think they’d be paying those teaser rates forever? They need to take their lumps, move to a rental and regroup for when the housing market hits bottom. Hopefully, they will have learned their lesson and go with a 30 year fixed this time around.
“Blame is to be shared across the spectrum for the current housing debacle and the systematic destruction of the US dollar. From Greenspan to the average US consumer, our culture fosters an immediate sense of ego gratification and entitlement, …” [comment by Mate]
Please beware that the exchange rate, and dollar value, depends to a great extent, on the actions of those living outside of the US, where true ’supply & demand’ is at work. Why would savers outside of US ‘buy’ $s if the interest rate is less than 2% as opposed to Euro’s what ever percent?
GFreenspan raised the rate 6.5% in 6/2000 and brought it down to 0.75%. It is the forces behind the scene to be blamed, may not the consumer!
I don’t think this would be much of a discussion if only the lenders, banks, and borrowers were losing money based on their own poor decisions. Unfortunately, every taxpayer in America is paying to keep the investment bankers and private equity firms from feeling the real pain. Bear Stearns is a prime example. Bear didn’t have to adhere to the regulations of traditional banks and as such, should not have been allowed to receive a Fed sponsored (aka taxpayer) bailout. However they got the best of both worlds, no regulation and no risk. Since the American economy is so dependant on these entities, I see no other solution than to apply a similar set of regulation and transparency requirements to these private investment firms, hedge funds, etc. The Fed needs to take action here immediately to properly regulate this sector of the economy that has burgeoned over the past decade. Who cares what Greenspan thinks, unless he’s presenting solutions to the problem, I could care less. But what do I know, I’m about to purchase my 1st house at a steal with a historic low (fixed) interest rate. I have no pity for those who bought a larger mortgage than they could afford or the lenders who sold them. Its called make a budget and live within your means. Its time for the large private investment firms to take their medicine. This should and needs to be a painful process.
One final side note, I would be more than happy to run any investment banking firm or hedge fund into the ground for under $1M.
It is quite comical to see some people resort to the argument that because a decision was made by a group of people, then nobody is responsible for it. This is what America is coming to. Nobody is responsible for anything. Home buyers are not responsible for the debts they get themselves into, lenders are not responsible for the bad loans they make. Alan Greenspan is not responsible for encouraging people to borrow way out of their means for lavish lifestyles. George W. Bush is not responsible for borrowing trillions to fund his war and give to his corporate buddies while the taxpayers get stuck with paying it off. Congress is not responsible for authorizing the war. It certainly won’t be responsible for raising taxes or getting into even more mountains of debts to bail out the irresponsible. America is now the land of the irresponsible.
Folks,
Let’s look back with a little accuracy. The real estate markets with high foreclosure rates and/or big price downturns, which are the markets driving the current credit crisis, are of two types:
1) markets with sizable numbers of buyers with subprime credit who primarily had an opportunity to buy into the housing market because lenders were at the time willing to make loans to them at affordable interest rates;
2) investors speculating on housing trying to make a fast buck on the housing frenzy without much capital to invest, but lenders willing to finance their activity through no-interest and negative amortizations, small down payments, no-doc loans etc.
In case (1) it is hard to fault the buyers. They otherwise would not have been able to afford to own their own home, and if they lost the home to foreclosure, they were no worse off then if they didn’t buy it in the first place. The lenders were not getting an adequate premium for taking the extra risk and got burned for it.
In case (2), the investors took the risk and those who tried it at the top of the market rolled the dice and lost. It is part of our economic system that people will seek opportunities to make money in investments, sometimes speculatively. Again, the lenders were not getting an adequate premium for the risk they were taking.
I remember Greenspan many times saying someting like istory has been unkind to investments with inadequate risk premiums.
The blame for the mess were are in lies squarely with the mortgage industry, particularly the institutions buying packaged loan products from the loan originators at interest rates not commensurate with risk. Everyone else in the equation was acting financially rational given our capitalistic system.
And those of you wanting to blame real estate and mortgage brokers, you may want to try to assess how many of them were cautioning clients about taking on too much debt obligation before making blanket statements about them as a whole.
It is true that Greenspan can’t possibly be blamed entirely. But he certainly played a key role. We traded one bubble for another…when the tech bubble popped in March 2000, he began a continuous cut in interest rates right into 2002. This led to massive borrowing, some of which was plowed into housing. His biggest error was not raising rates much sooner to take the froth out of this housing bubble.
The fact is, no one complained because everyone was making money. Homeowners saw 15%+ annual price rises for over 5 straight years, mortgage bankers and brokers were taking origination fees as part of borrowers closing costs, then selling their loans to other banks or investment banks to be packaged into MBSs. And builders kept on building more homes and charging more.
Nobody worried whether or not a homeowner was likely to repay the loan because most of the loans were being securitized anyway. The thing about bubbles is, they tend to go on much longer than anyone expects, until that day comes when they pop.
We should have paid our dues when the tech bubble popped. Without lower interest rates starting in 2000, we would have had a longer recession but emerged stronger and without all this debt hanging over everyone’s head like the Sword of Damocles. People are responsible for their own actions - including understanding basic finance and reading a contract before signing. Yet the gambling mentality and overall behavior during the housing bubble which the Fed fostered through low rates was totally predictable and avoidable.
So get ready folks — it’s time to pay the piper. We’re going to have a severe recession which will include a debt deflation, a U.S. dollar wipeout, a real estate wipeout, major job losses, and likely soon a stock market wipeout anyway.
When Greenspan dropped interest rates below 3%, they were below the rate of inflation. In effect, the Fed was PAYING banks to take their money. Obviously, such an absurd policy will have repurcussions on the economy.
Low interest rates made mortgages seem very, very cheap, and thus an excellent investment. This was undeniably the very direct cause of the housing “bubble”.
And now we are seeing the inevitable result of that: the collapse of the housing market, the home-building industry, and a lot of the economy along with it. That Greenspan couldn’t seen that coming shows how inept he was. Of course, his real motivation by dropping interest rates so low was to give a big boost to the economy so Republican President George W Bush could look like he was doing a great job managing the economy, and that his tax cuts for the rich worked.
We need a non-politically biased group running the Fed. Unfortunately, bankers are almost universally conservative Republicans.
Greed is the answer. It is what makes our economy run now. It’s kind of like nuclear power, when controlled and guided it can be a good thing, out of control and you can have a meltdown.
The financial sector was willing to make risky products available, and consumers who had no business purchasing homes that were really out of their reach, were all too eager to sign anything. Heck, I would have liked a bigger home too, but I couldn’t afford it.
Throw in the investors who wanted to make a quick buck, that drove housing prices up and up, that was greed to. I live down the street from a subdivision that states in their HOA rules and covenants that no more than 25% of the homes could be sold to people where that was not their primary residence. The builder actually sold 2/3 of the homes to outside investors. Even though this is a brand new subdivision, these homes are sitting empty, grass overgrown, and the crime rate has sky rocketed.
So much for suburbia…
Americans need to quit living beyond their means and pay for what they can. I realize though, that for us living in the middle class, that is getting increasingly difficult to do.
I justed wanted to point out that being on the sidelines looking to buy in Southern California - I can say that folks that think its the peoples fault that got into the wrong type of loans - are absolutely wrong.
Yes they have a committment to read the fine details - but who actually does? And pressured Real-estate agents, brokers always show the bright and sunny side.
People are emotional when they buy homes, its not always from the head, its also from the heart.
Second to that, Alan is to fault for not taking the blame. ARM or no ARM, when home prices rose radically, it wasn’t a hint, it should have been an alarm to manage effectively, not let loose.
The general problem is that everyone across the board contributed to the issues we are facing right now, so singling out a single person or a group of common people that dont read 100 page agreements is wrong.
People need to first do a self assessment of their contribution to the crisis now, agree that they may have contributed - but most importantly I just want to see resolutions now - the crisis is already here - what we can do is learn from looking at how this happened and stop worrying about blaming people, and instead work on fixing the broken system.
That’s what I think, reading all the blogs, news and alerts - that everyone played a part - now hopefully we can work to hash out the issues and put in safeguards to mitigate this.
People are so funny. I bet if you look back since the beginning of the country everytime there’s a boom, followed by a bust, consumers, politicians, regulators and everyone else freaks out and go off on how money hungry everyone in this country is. The fact is, this country has continued to get richer and richer, decade after decade over a very long period of time and the standard of living has continued to increase for everyone, although not evenly. There have been painful down periods like we’re going through now but no one can stop bubbles from occurring because we like bubbles in this country whether we like to admit it or not. Regardless of how bad this crunch gets if you look from ther start of the housing boom, most people still have a lot of equity in their home and are doing well. In the worst markets prices will drop 30 - 40 percent but this is after prices going up 50-300 percent over the last 10 years. The speed with which our financial system has reacted to admit failure, and correct the problem by cleanning out the books is the primary reason why we always end up stronger after a bust than before. Americans are really good at making money but they are even better and quickly cleaning up their garbage and getting back on the money train. I bet you in 2 -3 years we will be moving on to the next asset bubble and when that one bursts we will be talking about the same things we’re talking about right now. Just imagine if the credit problems we’re experiencing right now carried on for a decade and no one could get a loan. This is what happened in Japan for a long period and they still haven’t recovered. Admit disaster, clean up the mess, make necessary changes to regulation and get going again. Two years from now many of the same mortgage products by different name. Most of us are a least a little greedy which is good for everyone.
Greenspan was saying that the US economy will benefit of outsoursing job oversees. I believe now well all see and yeald these benefits, he-he.
Greenspan held interests at historically low levels for historically long periods. He knew what he was creating, and he knew he would be long gone by the time (off to cash in on his position) his progeny returned to roost. Blame the addict, blame the pusher.
It’s quite interesting reading through the responses from so many un-informed and half-informed “experts.” Opinions are nice to have, but please use a foundation of knowledge and facts to support yourself.
For starters, he retired because he is getting very old. I’m assuming most of us would like peace in our last years on this earth. However, you should note that just after he became Chairman he faced one of the toughest crises of any predecessor, Black Monday. We seemed to recover very nicely under his leadership.
Second, the Fed is independent and makes their decisions in the interest of the overall economy, not individual sectors, business, people, and so on. If, however, they see it fit to take action to prevent a disaster (i.e. opening financing to JPM to buy Bear Stearns, NOT bailout) it is their duty to do so. Take for example the impact that a collapse of Ford would have on both Detroit and the country. 80,000 people work at Ford. For every 1 employee internally there are 10 people employed externally. So if Ford collapses that’s nearly 1M people out of work. I’d sure hope the government would step in to prevent this merely because of the chain effect impact it would have on the economy, from the Big 3, to suppliers, to local businesses, to your nice IT job a major retailer that is suffering because of down sales. This is how the Fed led by Greenspan was able to help with the Savings and Loan crisis in the early 90s.
Further, in an free economy we are free to buy and sell as we please. It is YOUR job, whether you are the buyer or seller, to do the due diligence to make sure you are not making a bad deal. It’s easy to see how things spiraled out of control. But, it’s just as easy to see how easy it would have been to step back as a lender, real estate agent, buyer, etc. and see that things are a little out of control.
Next, bubbles are inevitable. Because of societies tendency to recklessly pursue financial gains bubbles will regularly occur. 80s led to the S&L crisis. 90s had the internet bubble. 00s now have a housing crisis. Don’t worry, the markets will correct themselves. People will be angry for a while. Then the scars will heal, we’ll forget, and it will happen all over again.
Finally, Greenspan and the Fed saw this coming. They knew trouble was on the horizon simply because things were too good for too long. That’s why they raised the Fed Funds and Discount Rates over the beginning of the century. It allowed them to now lower rates in hopes for a “soft landing.”
My suggestion before you criticize is to educate yourself on how the economy works, the Fed, and Greenspan’s role. Don’t forget to add in the human factor by taking into account society’s tendency to act rationally over the long-run, but irrationally in the short-run. At the very least, you should read his auto-biography if you hope to have a non-biased opinion.
Wall Street has proven beyond any reasonable doubt that our financial markets cannot be trusted. The Federal Reserve might be compared to the enabler of a crack addict.
After these vampires fall asleep, let’s nail/screw/glue/chain the lids on their coffins shut!
Pretty sad, we always look to blame someone. Somehow Greenspan is the cause our current woes because he lowered interest rates…I am no Greenspan fan, but come on people.
The problem is with those who applied for and were approved for loans they could not afford. People need to take responsability for their own actions and not look for the rest of us to pick up the pieces of their mess.
I had thought we lived in a democracy…but, every day its more socialist than I imagined.
Enough already!
When things go bad fingers always point. Remember when greenspan took office he essentially hit the brakes on the money supply to curtail inflation. Now criticism that greenspan cut rates too quickly?
Greenspan took this economy from 12% inflation to 3% and, somewhat gracefully.
http://www.youtube.com/watch?v=_dmPchuXIXQ Part 1
http://www.youtube.com/watch?v=lBZne09Gf5A&feature=related Part 2
http://www.youtube.com/watch?v=SjUrib_Gh0Y&feature=related Part 3
http://www.youtube.com/watch?v=_BVNN1wqw3k&feature=related Part 4
http://www.youtube.com/watch?v=rwz85gWjFbk&feature=related Part 5
Educate yourself people!
I am amazed at how many people post their opinions as fact with only the slightest of factual information to back up their statements.
For all of you suffering in today’s down economic conditions, take comfort that this will not last. This is just a slump (albeit a big slump) that will eventually bottom. Do not petty yourself by getting in on this blame game. It is a pointless endeavor. Focus instead on helping yourself and others.
Noah from http://www.ShortOnChange.com
ARM mortgages were ok for prime borrowers. The adusted rate now is below 5% for most prime borrowers. Again it is the sub prime loan with high margins that are causing the problem. It is the same with neg-ams. Those loans with low margins are floating at about 6.5% but the loans borrowers with hits on the margin for bad credit and additional hits for “rebates” to the mortgage brokers are suffering.
This is just another example of people being unable to take accountability for their actions. To turnaround and point the finger at Greenspan for consumer’s inability to make an intelligent financial decision and corporate greed is absurd!!!
Blame is to be shared across the spectrum for the current housing debacle and the systematic destruction of the US dollar. From Greenspan to the average US consumer, our culture fosters an immediate sense of ego gratification and entitlement, prompting people and policy makers to over leverage themselves in debt. Now that it’s now time to pay back what was borrowed, Americans are crying like babies and, true to fashion, once again pointing the finger at anybody but themselves.
Strictly speaking, Greenspan was absolutely arrogantly cavalier in pushing policies that any amateur economist knew would boomerang in his face. You just cannot push cheap money without fostering least common denominator behavior. That is Greenspan’s greatest transgression: favoring the irresponsible people over financially prudent and diligent savers. Now the losers who are mired in debt want the latter to bail them out yet again, with pandering politicians all to willing to engage in yet another assault upon the middle class…or what remains of it.
Greenspan is but yet another ego seeking grandstander, just like many elites, who fiddled while Rome burns.
you can all read a loan doc. if you can’t you shouldn’t be getting into a contract. its no ones fault but the people who took out ARM’s and hope they could make it. and now they all wanna be saved.
#1) There is a fundamental misunderstanding of Adjustable Rate Mortgages, Interest only loans, and Sub-prime financing and it’s only making the credit issues we currently have worse. Until we take the time to truly understand what’s at issue, which at least on THIS site isn’t going to happen, we’re ALL going to be paying more to take out loans. Period.
2) The armchair quarterbacking on this comment thread is amazing. You all know that there are 7 members on the Fed Board of Governors, right? Greenspan couldn’t have been any more singly responsible for this than President Bush is for the Iraq war. Just like a majority in Congress had to vote to approve the action for war, the entire Board of Governors votes to approve Fed policy, and only after conferring with the 12 member districts, amongst other people. Had the other Fed governors felt differently about Greenspan’s positions, they could have voted differently.
It’s sad that we’re all so willing to offer up our opinions, in such strong fashion, without having a basic understanding of some of these issues. But that’s also probably what got us here in the first place - poor information about the issue from the media fueling snap decisions about things we don’t really understand.
The real problem is endemic greed feeding self delusion. Greenspan believes the Fed has neither the autority nor the ability to reign in “irrational exhuberence” through its control over interest rates. I do not believe economists are able to agree on this question.
Greenspan is wrong in his decision not to regulate collateralized debt obligationsa and th new generation of asset backed securities and reinsurance contracts which converted iliquid lon term debt into short term, liguid securities. Self regulation leads to disorderly markets because there is no umpire on the field to to assure compliace with the ruels of the game by all the players.
Oh come on Mr. Geenspan! There isn’t a reputable economist in the world who doesn’t understand that the housing bubble formed because you lowered interest rates too much and left them low for much too long. You aren’t responisble for the greed on Wall Street, but you certainly poured gas on that particular fire.
Can’t blame Greenspan–blame the greedy mortgage bankers, the greedy realtors, the corrupt appraisers, the greedy builders and a litany of other housing related crooks for this mess. Not to be left out are the individuals who allowed themselves to be duped by these people without asking any questions.
lmao…
greenspan was a big joke when he was with the fed and he’s a MAJOR joke now!!
get over yourself greenie….we’re tired of hearing your antiquated excuses for why you have no blame to take in the economic matters of the US.
pathetic little joke of a man you are!
I think that as much as we’d like to argue against it, the Federal Reserve Bank’s actions are insignificant compared to the amount of speculation that was going on during this most recent housing “boom”. To blame Greenspan, one man, for the downfall of the largest economy in the world seems a bit over the top don’t you think? Maybe we should take a step back, and look at how many American’s purchased houses solely based on speculation the price would go up. Maybe we should think about how many lenders helped them. Just a thought.
Greenspan is now trying to talk his way out of the blame. Using slick confusing Fed buzz words. Fact of the matter is he violated for far too long the mandate to increase rates when in risk of inflationary pressures. Instead he lowered them to unbelievable lows creating a borrowing frenzy, hyper-inflation, and a worthless dollar. I guess we should thank him?
I know he takes orders from above but he should have resigned before conducting irresponsible moneraty policies and denouncing the administration for the good of the nation.
Enough said!
Here’s the truth. And his career was assassinated for it.
Sorry Ginny, The white House has nothing to do with this artice.
The Fed is Independent.
This is about business not politics.
Sheesh…
Let’s blame Bush for Katrina,Global Warming,the economy,traffic accidents,WWII !!
Go pound your politics on Kos.
To answer he comment by Enfield, CT, The ARM was made possible so that “real working Americans (read those who cannot afford conventional loans)” could buy what they couldn’t afford. Of course the lending institutions made money. That’s what they are in business to do. The media is full of stories about over-zealous salesmen preying on those who cannot understand what they are getting into. Don’t blame Greespan or the industry for the actions of group of people who bought more than they could afford and are now forced to account for there excess. I, for one, couldn’t afford to upgrade, because refinancing would have put my house payments out of reach. I am too old to play that game, again.
Where were these economists, analysts and media when the Real Estate Bubble was forming? They were all cheering for Greenspan. Now he is the scapegoat. If Benjamin Bernanke acted a little quicker there wouldn’t be any Bear Sterns down the drain. Greenspan did state in one of his speeches that Real Estate Market correction was necessary. Pull the tapes out from all his speeches and play them. He did mention many things that people just ignored. People with no money bid up the prices of homes. The Government will have to step in and adjust the house prices in many parts of the country. I don’t mean 25% but at least 35% to 60%. These people are charging 500k+ for wooden houses. Its a shame. The current prices on houses are still too high. I still urge people not to buy a house in this still over inflated market. NYC prices are still going up. People in NY I don’t know whats in the Starbucks coffee that you drink, but its time to wake up and see what wall street and main street are up to.
Criticism of Greenspan in Colin Barr’s Daily Briefing column via his quote from Naked Capitalism is simply naken headline grabbing. To say that Greenspan is intellectually bankrupt says more about the writer of that statement than it does about Greenspan. When studying econometrics in college, I learned that solving a equation with 4 variables was nearly impossible (calculus was nearly impossible for me anyway!). Trying to conceive of all the variables in one country’s economy, much less the international economy we now find ourselves in, is mind boggling. Could someone have done better? Probably. Did Greenspan do his best? Probably. History will be his judge, but wagging fingers is really pointless. Let’s learn what we can from hindsight and move forward.
I agree 100% with Indianapolis, IN. Greenspan is certainly not intellectually bankrupt, but the Bush Whitehouse and his administration certainly IS. Yes, thank God it’s an election year. It’s just a shame that only one candidate is running.
Here is some evidence for Mr. Greenspan:
1989 FOMC MEETING NOTES
“MR. BLACK. If we say “maintain” would that preclude our letting the federal funds rate move up?
CHAIRMAN GREENSPAN. Not that I know of. it wouldn’t.
MR. JOHNSON. I assume that there’s an implied management approach by the Desk that goes with “B.” It’s what Don reported on.
2/7-8189 -61-
Now, I don’t know what that means. It means being more sensitive to the funds rate but obviously there’s some play in it.
CHAIRMAN GREENSPAN. There has to be some play in it.
MR. JOHNSON. It doesn’t mean any persistent upward pressure.But I think everybody agrees it doesn’t mean a decline in rates from the current level.
MR. BLACK. And “maintain” would permit us to raise the borrowing target $100 million?
CHAIRMAN GREENSPAN. The answer is yes: the instruction to the Desk shes permit the Desk to raise the borrowing target to $500 million in that the asymmetric language allows that to occur.
MR. FORRESTAL. Mr. Chairman, I think the point you made about a consensus of the Committee is very important. And for that reason I would entirely support your prescription for the economy over the short term. particularly the asymmetric part. Having said that.
my preference would be to move at the present time. I happen to believe this forecast that the staff has come out with. And the inflation projections through 1989 and 1990. in my judgment, represent an unacceptable level of inflation. And achieving that level of inflation implicitly suggests some tightening. What I’m concerned
about is that we’re going to have to tighten down the road. And that tightening might be more than we would like to have happen to contain
inflation. In other words. it seems to me the longer we have this run without taking more decisive action the more difficult our task is going to be in the future. But at the moment I am content to agreewith your proposal.”
3/2008: Analysis:
In 1989 Greenspan’s fed lowered rates in the face of significant inflation concerns and thus began minimizing an inflation-fighting mandate to “an implied management approach… that had some play in it.” 2 asset bubbles ensued, and set the stage for continuing, very fine tuning between the central bank and financial markets.-J. Graham
Greenspan needs to take much of the blame for todays’ money problems. He kept fixing things to keep the economy running and when he saw he couldn’t cover up the problems, he bailed. How convenient that he retired just before all these financial situations became known. Maybe someone should start investigating his dealings while he was Chairman.
I think it is fair that he is being singled out.
If you go back a couple of years and look at some of his statements and speeches - he always tried to assure everyone that everything was under control — meanwhile with his constant cutting of rates and not pointing out that much of the country was using liar loans and interest only loans he was the “maestro” of the house of cards. I used to have lots of respect for the guy, but he blew it.
June/July 1998, we have the Asian financial crises. Hong Kong Financial Secretary Tsang used the huge Hong Kong reserve fund to invest in the local stock market, and stabilized the whole economy. Mr. G criticizes H.K. Government as “evil intervention in the private sector”. Two months later the same old fool used our tax dollar to save a private firm who lost billions betting the wrong side of the stock market. This double standard already proved that he was not competent for his job since 1998. But Bill was too busy with his women so who cares.
The real blame of the housing bubble is the lenders who willingly overlooked “well earned bad credit” of borrowers, borrowers who mistakenly thought “If they lend it to me, I MUST be able to afford it” and the builders who overbuilt during inflated housing prices only to watch their inventories of unsold home tank, destroying the values of the very homes they built and sold, not to mention the one they have not sold.
I am pretty sure Greenspan has paid all his bills, not borrowed more than he can afford or destroyed the value of his own assets, so I can’t really see how he can be blamed. He simply tried to help out those who had good credit afford to buy something a little nicer.
It is unfair to place all of the blame on Mr. Greenspan. Adjustable Rate Mortgages are investor loans and should not have been sold to people without the financial knowledge to understand the strategy behind an adjustable rate loan. The real crooks are the mortgage brokers and banks that sold these loans as dreams come true loans for young families.
You can’t single out any one person who’s responsible for this. Sure we can blame Greenspan supported ARMs, but there may be times when it’s a prudent thing to use - who knows.
We can blame people who took on more debt than they can handle, and there’s some blame there, but I first and foremost blame the educated professionals - the bankers - who approved these loans to begin with.
CNN reported an example of a $400,000 loan given to an individual making $19,000/yr - and he defaulted and the bank forclosed on the house. I could’ve told you that’s going to default, I’m no expert, it’s simple math. What the heck were the bankers thinking??
The fact that Mr. Greenspan may have supported ARM in the past is not enought to single him out as the responsible party in todays financial conundrum. It is the duty of a financial institution to profile the client and make objective assertiones as to his or her viability as a client, and more importantly, make sure the product fits the profile. The fact is that financial institutions have enjoyed carte blanche with their lending practices and standards.
Really what I want to know is when someone is going to go to jail over this Panzi (subprime) scheme? If none of the failing banks CEO’s or failing subprime mortgage lenders want to go, send Greenspan! Most of the prisons those guys end up in have resort like atmospheres anyway! It will keep him quiet. This whole greedy mess is outrageous!
No doubt Mr.Greenspan is looking for someone else to blame, as the FED chief he WAS in position not only to keep the sepeculators from getting out of hand and betting on countires and curruncies from going under, he was in position to control the hedge funds from borrowing and then leveraging (leveraging against non existing funds). low intrest rates contributed not only to excessive borrowing (including by the federal government) and consumption they also contributed to decrease in savings by taking away the incentive to save and caused the zero down payment loans (auto and home)to consumers to fluorish. An increase in the intrest rates now will only cause the borke US government to go deeper in debt (braking the banks, “tombstone001.blogsopt.com”)
Greenspan is more “Hollywood Elite” than a true Economic wizard. He is and was all hype. He always wanted to be bigger than the system he had oversight of. Wanted all the credit all the time and none of the blame any of the time for the decisions he made.
As you can see everyone is trying to blame someone. What you don’t see are all the people that made truely poor decisions in buying a house they never could afford, blaming themsleves. We live in America, if you’ve forgotten everyone is here to make money, banks included. It’s time to be responsible and take the blame and understand this is your fault not Greenspan’s.
arm can be useful strategies if the lender and the borrower know the risks of default. if there is an indictment on the greenspan fed was that it did not use it regulatory authority. lenders & debtors can marke arm deals work when everybody is operating under the guise of full disclosure. the fed, if it had known the full extent of no doc loans, inflated appraisals and the bundling of 30-year fixed prime securities w/ subprime arms that got these deals financed, and then proceeded to do nothing, then you can heap away.
This cracks me up! Everyone loves to look in the rearview mirror and blame Greenspan. Yet these are the same people who, when he was Fed chairman, extolled him as a genius! Fair-weather friends! Greenspan is a financial genius, and with the glabal nature of our economy, no one man could beresponsible for today’s woes.
TO Indianapolis, IN,
Your sheep like following of Bush bashing rings through.
If you read the article it states Greenspan’s peers are behind his lashing out. Who isn’t judged by their peers in their profession.
Bush isn’t perfect but we will miss him when he gone.
Esq. Greenspan, apparently, supported the repeal of the Glass Steagall Act (Read Mr. Greenspans book) which gave banks an enormous competitive stake in underwriting credit default swaps, rate swaps, etc on the sub prime mortgage pools as well as “conforming and non-conforming pools of asset backed securities. The credit and rate swaps and other bank “OFF BALANCE” sheet derivatives were designed to secure the pools of asset backed securities even with a modeling market methodology which provided no methodology for a price decline in the underlying collateral. The credit default and rate swaps were to guarantee these. Where are the guarantees and insurance? ….in WE THE PEOPLE….and WE THE PEOPLE should all be told this sooner than later. A $300 tax refund does not touch the inflation cost we the people are encountering to resolve these corrective measures. OUR postarity will want a clear answer so these mistakes will not be made again.
Try as he may, he cannot absolve himself from the debacle that he caused by transferring the tech bubble into a real estate bubble. He kept the interest rates too low, too long, encouraging crazy speculation in housing.
I recollect the 1990’s when the financial market traders and investors
waited,with an almost pious gravitas, for Alan Greenspan’s nebulous ramblings
before making their Stock trades. It was humorous and frightening to see how one man’s nebulous theoretical ramblings, could so completely influence the average investor’s decision making proccess. I believe that inordinated credit was given to Mr.Greenspan for the economy’s past successes, and the undue blame is equaly disproportionate.
Folks, the issue is not the free market here, but interference in the free market. The Federal Reserve attempts to manage the economy from a top-down approach by manipulating interest rates when the economy is better left alone. How can one man like Greenspan or a small group of people such as the Federal Reserve Board possibly manage something as complex as an economy composed of a couple hundred million people? Economic interventionism doesn’t work! If we had sound money and a true free market economy, we would not be in the this mess. And for the record, Keynes was an economic interventionist. Austrian economics - free market economics - predicted the crash we are in and is proving Keynesian theories wrong. We are all much better off when the government keeps its hands off the economy!
Everyone, Banks, Analysts, Mortgage lenders, Brokers, sellers and especially the “BUYERS” are to be blamed. No one put a gun to their heads and said you have to buy this house. Alan Greenspan lowered the interest rates to help boost the economy. Media does seem to cut out some very important facts on so many speeches. These people bought exopensive houses, luxry cars, multiple properties to sell later, etc. It all spells “GREED”. They are to be blamed to the sky high real estate prices. The appraisers told people that their property is worth 5 times the actual value. The buyers bought the property knowing the price tag. If these people actually sat there and read the fine print I would not be writing this. Greenspan, Bernanke and other not the ones to be blamed. Owning a home is an “American Dream” , living beyond those means led to this “American Nightmare”.
Greenspan never implied that the 30 year fixed was bad; rather the ARM would have saved most homeowners money in interest when taking a historical look. Many people were locked into 30 fixed rates from the 80’s that would have benefited in the 90’s and 00’s to be in an ARM. In addition, much of the exotic ARM’s were not even originated in banks and thrifts, where Greenspan had any control. Don’t blame Greenspan for fueling the bubbles that we are left to deflate as everyone had their own part to play. Greenspan never controlled mortgage rates, Wall Street did. Greenspan did not force people to purchase homes; initiatives from Congress fueled the urge to want more Americans to become homeowners.
Greenspan was not a far sighted monetary policy maker who benefittd the crown for too long simply because he was an ideologue, would not fight for power to take responsibility for cases like housing bubble, supported ARMs and derivatives, and no other replacements could be trusted as much as him. Consequences of his judgements are trasparent now.
The problem isn’t with Greenspan and interest rates or adjustable rate mortgages. The reason people are losing their homes is because of uneducated people are doing loans and not educating their customers on the positive and negatives of adjustable rate mortgages. Uneducated, greedy loan officers and realtors are to blame.
Greenspan, GO AWAY already! You had your time, you mucked it up and you left the position. Society no longer wants to hear from you! take Bill Clinton with you!
Driving on the streets and highways is essentially a free market without people monitoring how much you drive, why you drive, or where you drive (GPS and insurance companies may change that!). However, there are speed limits, traffic lights, stop signs, with police to enforce them. There are also national standards for car safety features as well as insurance companies providing separate testing and ratings.
It appears that the Bush Administration and Greenspan believe that a system equivalent to traffic laws and enforcement with car safety requirements is unnecessary for Wall Street becasue these are bright people who will behave rationally.
Guess what: the last few years have shown that Wall Street is still populated with greedy people who live for the moment and are willing to use idiot savants with their computer models to help them achieve their short term goals come hell or high water.
FDIC, FSLIC, and Fed regulation has meant that the banks and savings and loans are coming through almost unscathed but the Wild West mentality is causing chaos on Wall Street. However, the need for Wall Street to come to the Fed trough means that they are forfeiting some rights to drive around without traffic laws.
Regulation needs to be put in place to manage their leverage ratios, preventing little financial games (such as off-balance sheet assets and loans), and force the compensation system to make them think longer term (at least 3 years).
I bet the nail salons will be the winners in this economy with the way everyone is pointing a finger your nails better look good.
I can possibly see why Greenspan would be irritated and to use your article’s phrase “Lash Out”…..The politics and those behind this blame game are childish at best, the Bush Administration disgust’s me in this latest endeavor to point the finger at greenspan if only to look good in the publics eye……Thank god its an election year. Get that man and his administration out of office.
If you read Greenspan’s book it is easy enough to understand. He certainly has his share of the blame but it has a deeper root than most of current commentators attribute or understand. It is very cleat that Greenspan is a dogmatic “Free marketer” a la Ayn Rand/Milton Friedman, and most of the time the free market works pretty well. But the times that it doesn’t are when the “animal spirits” get revved up. We can now quote Keynes.
“Speculators may do no harm as bubbles on a sea of enterprise, but the position is serious when enterprise becomes the bubble on a sea of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”
Keynes, sadly, is not in as good repute as the free market ilk these days, which is too bad. Keynes was a succesful speculator himself and understood this. Greenspan and the late Milton Friedman on the other hand were merely succesful theoriticians and in the former case, also a government bureaucrat. Neither really understood the “market” in a hands on way and thus they both get/(got) very riled up when their theories/predilections are challenged.
riseamiithe proble
Greenspan, you speak like a politician. Spin City. Be a MAN and admit your mistakes. Do not try and justify what you did so you can continue to receive endorsement monies from speaches and books etc. I am so embarassed for you……
Adjustable rate mortgages may be acceptable these days, but that doesn’t make using them a prudent decision.
If your buying on credit you probably can’t afford it and should not be buying it.
Credit was created not for the sole benefit of the buyer, but mainly to benefit the seller by providing a larger market for the goods sold.
I’m not a business expert but didn’t all of those ‘creative’ sub prime loans that allowed anybody and anything with bad credit or otherwise happen under his watch? Where was he when all this was going on? He was supposed to be our guru of the Feds money policy. He was the one who was supposed to be watching the store. Its as though he put an out to lunch sign up on the front door and came back to find the store had been robbed. Why? Because he left the door unlocked. Rather than express responsibility like a true bureaucrat here come the excuses. You blew it Al, fess up.
I think we should outsource these people who double talk themselves into history. They only care about making a buck and care nothing about real working Americans.
I have always felt, Greenspan to be a savvy political hack. I waited for 2 years to buy a house around 2005 because buyers with 100% down and poor credit history were coming to the market and bidding up house prices and the bubble was clearing forming. Greenspan continued to insist there is no bubble, just some froth in some markets. The stock market had a ball with the low interest rate. Savers were punished and everyone borrowed recklessly, even congress went on a deficit spending spree under a republican administration. Well, like all good things, the party has come to the end, and it is time to pay up. Unfortunately congress is back bailing out the homeowners who were “misled” and again punishing those who have been responsible and also those who are savers.
Why is Greenspan so upset? During his tenure as reserve chairman, the dollar lost 50% of its value
He’s no longer the Chairman of the Fed. Please just be quiet and enjoy your retirement. I think, to an extent, people take his pronouncements as gospel and he is part of the problem.
And how the current fed actions are any different. They are just preping us for the next bubble. Nothing more!
Greenspan should have retired quitely and disappeard into the sunset. Instead, as if by plan, he creates a pitiful distraction of himself.
For years the market analyzed his every word and moved accordingly. Wow goes to show how stupid the market really is.
Buy and hold stocks it’s the right thing to do. (If you can afford to support the market)
GREENSPAN IS THE BIGGEST FRAUD. He surely caused The housing crisis in this country by not only giving free money to the banks but also fooling people into believe that America and the world was experiencing housing boom because of the collapse of communism (LOL!). Only a few months back, he still assured us that the housing sector would have a soft laanding.