No Cushion for Greenie’s Legacy
As Alan Greenspan will once again attempt to defend his now-tarnished legacy (see Paul Krugman’s recent takedown here), I feel compelled to point out what is, in my opinion, among Greenspan’s most egregious miscalculations. It came in a speech on Sept. 26, 2005:
In summary, it is encouraging to find that, despite the rapid growth of mortgage debt, only a small fraction of households across the country have loan-to-value ratios greater than 90 percent. Thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices.
It was, apparently, inconceivable to Greenspan that home prices could decline more than 10 percent. Not exactly the out-of-the-box, expect-the-unexpected thinking one would hope for from a Fed chair (i.e. correctly identify a problem, then rationalize it away with no mention of any contingencies or a Plan B). As it turned out, even 70 percent LTVs — in many cases even lower — would wind up with mortgages that were on par with the home’s value, or even underwater. How could Greenspan — the “Maestro” — have fallen into the trap that an asset class — any asset class — could only move in one direction or correct no more than some arbitrary amount?
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April 7th, 2010 at 10:12 am
Whenever I hear a public servant speak, the first question I ask is: Now what is the truth ?
The financial crisis was supported by a large group of corrupt people, most of which will never face a courtroom judge.
April 7th, 2010 at 10:15 am
Groupthink is a powerful force….
April 7th, 2010 at 10:30 am
On February 23, 2004 Greenspan told the Credit Union National Association 2004 Governmental Affairs Conference that: “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”
The Fed began a series of fed fund rate increases 4 months later (June, 2004). Encouraging banks to create “mortgage product alternatives” shifted the risk of rising interest rates from banks holding fixed rate mortgages to consumers holding “mortgage product alternatives.” The rest is history.
http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/default.htm
April 7th, 2010 at 10:30 am
While it’s both cathartic and potentially useful to wrest a confession from Greenspan, it would be just as interesting and more helpful to ask him to identify who, if anyone, at the Fed was telling him he was wrong.
Let’s try to find those inside and outside of government who predicted the crash. I believe Janet Yellen claims to have raised alarms, and there’s the former Fed governor (I think) who died a year or so ago whose name escapes me.
April 7th, 2010 at 10:36 am
“now-tarnished”? How about CATASTROPHICAL.
btw, I just heard Bloomberg radio. This orwellian news media is still calling Greenspan a “genius” and “maestro”. What’s going on in the US?
April 7th, 2010 at 10:40 am
It’s like watching a great Tennessee Williams play, which would be best viewed from a worn leather club chair, with a glass of bourbon, neat. You can almost smell the mendacity in the air.
April 7th, 2010 at 10:44 am
The Emperor had no clothes
April 7th, 2010 at 10:48 am
Can’t he just go away already? Hasn’t the man done enough damage?
April 7th, 2010 at 10:50 am
From http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/
“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”
I heard him say that on NPR in 2004, and I nearly fell over. It was at that point that I realized that Greenspan was not on my side.
April 7th, 2010 at 10:51 am
@redd: That’s one of his “money” quotes right there.
April 7th, 2010 at 10:58 am
Greenspan: “I was right 70% of the time.” The hubris of this man and other “brilliant” types in the kool-aide drinking club is mind-blowing.
April 7th, 2010 at 10:58 am
“How could Greenspan — the “Maestro” — have fallen into the trap that an asset class — any asset class — could only move in one direction or correct no more than some arbitrary amount?”
________________
Maybe it’s because he’s a snake oil salesman and the front man for the largest pyramid scheme ever attempted?
April 7th, 2010 at 11:00 am
@DC
We could start here.
April 7th, 2010 at 11:00 am
A Says:
“Whenever I hear a public servant speak, the first question I ask is: Now what is the truth ?
The financial crisis was supported by a large group of corrupt people, most of which will never face a courtroom judge.”
______________
Even if they were hauled in front of a judge, what makes you think the judges aren’t in on this?
The Corporatist cabal owns all 3 branches of government.
April 7th, 2010 at 11:07 am
Can’t we all just ignore this piece of shit, white trash?
April 7th, 2010 at 11:07 am
“How could Greenspan — the “Maestro” — have fallen into the trap that an asset class — any asset class — could only move in one direction or correct no more than some arbitrary amount?”
Well, he’s always done everything the Fed could do to prop up and blow asset bubble after asset bubble, so he knew full well they’d just do it again. It wasn’t that he fell into the “trap”, it’s that he knew they’d always do what it takes to put a floor under all assets. That was always his “M-O” since the ’87 crash.
April 7th, 2010 at 11:07 am
Thanks for that link, Invictus.
April 7th, 2010 at 11:08 am
There you go, MA. George Carlin had it right about “the club”, and you and I not being in it.
April 7th, 2010 at 11:11 am
Of course real estate cannot decline in value, just ask the guys who wrote the AIG models!
April 7th, 2010 at 11:15 am
Thanks for the link to the Krugman commentary; I wasn’t aware of it.
It is interesting that many of the same people critical of Greenspan are supportive of Bernanke’s actions.
I don’t agree with Greenspan on many fronts; however, I do find his work (especially his recent work) to be very interesting.
Greenspan recently had a very interesting Bloomberg interview; for those interested I comment upon it on my blog. The actual interview is long but very interesting:
http://www.economicgreenfield.com/2010/03/29/greenspans-most-notable-phrase/
April 7th, 2010 at 11:15 am
Just like how the financial stocks can’t go down now. Here we go again. Moral hazard is now the entire basis for our economy and markets.
April 7th, 2010 at 11:17 am
he also seems to have conveniently forgotten encouraging everyone to get into interest only or adjustable rate mortgates at exactly the wrong time.. ah the blessings of old age…
April 7th, 2010 at 11:18 am
@Ted: I don’t think that you’ll find many here at TBP (aside from a couple of folks who shall not be named) who are supportive of Banana Ben’s actions.
April 7th, 2010 at 11:50 am
How could he fall into a trap? His main job was propping up an ideology, not dealing with what was happening on actual people’s lives. He has the same troubles as the pope; his ideology also doesn’t take into account how humans actually function.
April 7th, 2010 at 11:55 am
Exactly, Darkness. People like Greenie and the pope will NEVER admit that they and their ideologies (and whole WORLDVIEW) was even remotely wrong. It will never happen. They’ll go fighting to the grave. It’s OUR job collectively to get the giant cane out of the woodshed and YANK them off the stage for good.
April 7th, 2010 at 11:56 am
Where is Chuck Barris when you need him anyway?
April 7th, 2010 at 1:01 pm
“So the question is, having very consciously and purposely tried to break the bubble and upset the markets in order to sort of break the cocoon of capital gains speculation, we are now in a position—having done that and in a sense succeeded perhaps more than we had intended—to try to restore some degree of confidence in the System.”
– Alan Greenspan, Chairman of the Federal Reserve
Source: Federal Open Market Committee (FOMC) meeting minutes from March 22, 1994
April 7th, 2010 at 1:29 pm
By “…have fallen into the trap…” I assume we mean, Greenspan going from originally bristling at the Dubya&Co rehashing of what daddy used to call voodoo economics to being the front man for it.
The “Greenspan Put” era is one thing; what he did during Dubya’s two terms is another. Whether he was procured or caved, it doesn’t change the result…but I don’t think he fell into any trap, as his exit and publishing points indicate that he knew when to get thefcuk out.
April 7th, 2010 at 2:41 pm
I already left this link in one of Peter’s comment sections, but some here might also enjoy Jim Grant’s rant about Greenspan –
http://www.businessinsider.com/jim-grant-alan-greenspan-2010-4
April 7th, 2010 at 8:25 pm
The John Stewart bit about John McCain was DEAD ON!
The drug companies have paid him big bucks to introduce legislation that will ultimately eliminate natural remedies from the store shelves.
For this McCain DOES NOT get re-elected, but instead has a nice little hidden bank account somewhere over the pond he can put in his pocket.
He truly has sold himself to big Pharma, who believes if you have a headache, it’s because you have a drug deficiency.
April 7th, 2010 at 10:38 pm
The bigger question is why, after he has been thoroughly discredited, does he still recive front page coverage? Why does the media hang on his every word and why do people still pay huge amounts to listen to him speak? Or, put more succinctly, given his record, who cares what he now thinks about anything? Isn’t he just another falied, discredited bueaucrat?
It would seem that the cult of “Celebrity” is still alive and well in the US.
April 8th, 2010 at 10:15 am
@ scottsdale foreclosures: you mean my buddy’s prostate cancer isn’t caused by a lack of chemo poison like the doctor says it is?
never ceases to amaze me how they think trashing your immune system will save your life
mcain is a paid stooge for the most dangerous cartel in the US–the drug companies and the FDA.
in human misery measurements they make the bankers look like jesus.
mcain was the lesser of two evils in 2008….thats been my only choice for a while now.
if only ron paul was a pretty young black women
April 8th, 2010 at 10:36 am
had greenspan been a true steward of the fed, instead of part of the bankstaz, he would have been run out of town or run over by a car…….just like we tried to strangle the dweeb in college that wanted to lock up the beer kegs at 2 am
the paper gold whistleblower recently barely escaped being run down on purpose.
someone has to rein in the crooks and the estrogen junkies and dispense some justice…….round my house thats me.