If the Fed knows all this, then don’t they have an idea of what we’re in for? I mean, don’t they have teams of people running forecasts, and analyzing EVERYTHING, and then controlling whatever factor(s) they need to? I realize we’re in a capitalist market, and not everything can be controlled, but why let interest rates get SO low?
My belief regarding interest rates is that the fed took what they perceived to be the lesser or two evils. They could do one of two things:
1) Lower interest rates massively.
2) Lower interest rates, somewhat, but not so much as to massively stimulate the housing market.
I believe that they chose option 1 because in their minds it was the lesser of two evils. They felt that they could reduce the extent of the recession (that would affect EVERYONE) and trade that for a future housing problem that would only affect SOME people. I believe they traded problems and exchanged a short-term issue for all, into a long-term issue for some. Now, it may not be the case that the long-term issue will only affect “some”, but my theory is that they didn’t realize the extent to which people would be so crazy.
The fed are economists, and they’re not stupid. So they must have had an understanding of what lower interest rates would do. Yes, it would save the short term. Yes, Greenspan could go on record as telling everyone to get ARMS and refinance. But the result should hopefully be some time in the future, and only affect some regions (the “frothy” ones”) and only some people in those regions.
In summary, I believe that that Greenspan and his “pals” picked a milder recession and a few bankruptcies, over a stronger recession and a stable housing market.
