Greenspan blamed for subprime crisis

[Happy renter]

I am so glad that the Congress realizes that Greenspan made the mess “Housing Bubble”.

WASHINGTON — Members of Congress are pointing angry fingers at Alan Greenspan and other U.S. bank regulators for fostering a mortgage market “on steroids” and failing to thwart a predictable subprime meltdown:

http://www.theglobeandmail.com/servlet/story/LAC.20070323.IBSUBPRIME23/TPStory/Business

Senators blame mortgage crisis on “neglect” by Fed, Greenspan:

http://seattletimes.nwsource.com/html/businesstechnology/2003631648_loansknown23.html

[Cow_tipping]

They may be right in blaming Greenspan but I’d say that is one lousy way to start a bailout bill. I’d say Greenspan has enough brains to deflect the blame and bury the stupid bill with fuzzy math.
Cool.
Cow_tipping.

[outtamojo]

Now,now, spreading stuff like that around may shake the core beliefs of those who think the Fed is:
1. Competent
2. Acts in the best interests of the common man

http://piggington.com/ex_bank_of_england_gov_tells_the_truth

[kewp]

Well, the Fed is an institution, it is neither competent or incompetent. Whoever is in charge of it, on the other hand…

I sometimes wonder if Greenspan is actually an AlQueda agent, the credit-bomb he built is going to make 9/11 look like small potatoes when it goes off.

[poorgradstudent]

Basic rule of politics: Take credit for everything positive happening right now, blame everything negative on your predecessor.

Not saying Greenspan didn’t contribute, but it was a team effort.

[SD Realtor]

I am not saying Greenspan is not part of the problem. However our entire culture is based on consumption rather then savings. This applies to cars, credit card debt, housing… pick a topic. Is Greenspan to blame for all the saps that run up Visa bills? I didn’t know that the Fed was responsible for purchasing all those boneheaded mortgages to begin with from the lender. Last I checked Wall Street did that. Nor did I know that the Fed sat and signed loan docs with all those buyers who shouldn’t have purchased to begin with. Yes I guess our country is that stupid, that we need to create an economic policy that will protect simpletons from themselves. This is sad. So everyone better blame one guy and his policy for this. Did the Fed persuade the hedge funds and pensions to purchase all those bad loans? Does the Fed control Fannie and Fred? Again, please do not mistake this post for endorsing Greenspan because I certainly do not. Yet to single him out is just another example of scapegoat politics. Yes the Fed controls the overnight rate but last I looked long term mortgages were tied to the 10 and 30 year treasuries. So words like this from our congress just go to show how boneheaded they are. If they didn’t agree with his policies then they should have challenged him every time he spoke before them. Again, I don’t like the Fed at all, but poorgradstudent called it, this was a MAJOR team effort with the US consumer leading the way.

SD Realtor

[Happy renter]

I know Greenspan was not the only one who made the decision for the interst rate, but his vote was very influential to other Fed’s memebers. Greenspan WAS the ONE who represented the Fed to claim that there was no “housing bubble” in the public:

http://www.jsonline.com/story/index.aspx?id=42398&format=print

http://www.realtor.org/realtororg.nsf/pages/bubblerefute?OpenDocument

http://www.ultimateonlinemortgage.com/data/Newsletters/Greenspan%20sees%20no%20housing%20bubble.htm

Later, people realized that there was housing bubble, but Greespan claimed the housing bubble was not caused by the 1% Fed rate:

http://www.dailyreckoning.co.uk/article/101020062.html

He encouraged people to take advantage of the low interest rate to borrow more money. His goal was using the housing market to support the economy. But he went too far and completely ignored the long term damage since he knew that he would retire!

Now, Greenspan is commanding $100,000 for an hour-long speech. he’s averaging about one speech a week, meaning that he likely earned more than $4 million in speaking fees last year after leaving office:

http://money.cnn.com/2007/03/20/news/newsmakers/greenspan/index.htm?eref=rss_topstories

[equalizer]

Greenspan doesn't need apologists. He worked for the Fed whose main job is to provide profits for banks so that Fed doesn't have to bail them out. He was one of the most powerful people in the world and what did the bubbleman have to say in Feb 2004?
"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.

American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.”

Some of his apologists claim that his statements were miscontrued. What a crock. He basically called you a moron if you went for a fixed rate loan. Even financial luddites like Suzy Orman said he was so wrong in April 2004, along with dozens of other finance journalists. So everyone misread his comments,and what did the most powerful person in the world do? He deliberately ignored the controversy and none of our DAMN media or politicians confronted him. They should be sent to Gitmo with him.

Someone please find Greenspan singing a song just like I posted Gonzales singing. Lets start the song-writing.

They call me the Maestro,
but I just wish I had half an Afro,
they said I could stop all the troubles,
but you all know that I caused all the bubbles …

   

http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/default.htm

[SD Realtor]

Once again….Last I saw Greenspan didn’t sign the loan docs that every buyer signed. Yes I suppose that if Greenspan wasn’t at the helm none of the lenders would have come up with all of these derivatives.

Yep that is the case.

Really guys come on. Do you honestly, honestly deep down think that this bubble would not have happened? Is that the case? If so then I don’t agree.

I am not a Greenspan apologist at all. I strongly disagreed with his policies all along. I do not recall all of the fed governers disagreeing with him at all the meetings but I guess I missed that.

Again it seems that people with half an ounce of grey matter do not buy something they cannot afford. Those that do, deserve to loose whatever they bought. No bailout, no excuses. Regardless of the bonehead policies that the Fed put forth in the past, you can be smart enough to live your life and not have to blame others for your own poor choices.

SD Realtor

[outtamojo]

The spiel was to tell everyone to just refi in a year or 2 after the house appreciated enough to have some equity – that’s what they told my sister in law.

Bailout alert http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=asu8RitVhBIE

“Ohio, which had the highest foreclosure rate among the 50 U.S. states at the end of 2006, plans to issue $100 million in taxable municipal bonds next month to help homeowners refinance mortgages they can’t afford. ”

[JJGittes]

During the Dot-com bubble days Greenspan should have raised margin requirements to 100%. The housing bubble was/is a repeat of the Dot-com bubble. Lots of spec buying fueled by crazy low interest rates. Only difference is that, at least in desirable places to live — like SD — the underlying asset probably won’t go to zero. (In Detroit it effectively has gone to zero.) But it doesn’t need to for lots of reckless people and their stupid bankers to get deservedly hammered.

[equalizer]

No one said he was the only cause. Sure, the rest of the Fed need to be sent to Gitmo as well. Why is the talk of personal responsibility never applied to people in charge?
By cutting rates so much, he facilitated the ARMs race and encouraged it. Did it go much further than he intended? YES!!
Did he expect the non-banks that he had no control over to forgo all caution? NO!!
Did he expect loan brokers to sucker many people and not provide the suitable product? NO!
Did he expect rampant fraud? NO!
Get a home loan should be just as easy as ordering a pizza, right? I still get flyers with 0.25% rate, with 500,000 loan for $200 a month, instead of $3000. No where does it say how long the rate will last and what the reset will be? These guy are getting bolder. Remember, that state regulation has been thrown by the lobbysist loving pigs in DC and there is NO fed regulation. Not everyone has a PHd, let alone know how to fill out the 10 line 1040EZ form. I think you forget that most people have to use a calculator to figure out 15% tip!
What is the problem with what happended? It drove home prices much higher than they should have, driving some out of the state.

Having castigated all in power, do I think we should bailout everyone? NO. Let the defaults begin, most of these people should NEVER bought a home.
Maybe in a few egregious cases, the feds and press should spotlight the cases and force the lender to change terms. (Has happened in a few cases, thanks to the press, not the regulators)

[JWM in SD]

I agree with Equalizer in certain respects on this issue. I have stated many times before on both this blog and the Ben Jone’s blog that you cannot expect J6Pck to understand Time Value of Money concepts. Very few people do…even highly educated people. Unless one has had training/education in finance, economics, and business accounting, then they probably don’t understand why it’s critical to ask for an amortization schedule before signing a loan..any loan. Doing so immediately highlights how much interest and principal is being paid and you know there is a problem when the number in th Principal column grows instead of shrinks. This may sound rudimentary to most who post on this blog, but I assure that there is a large number of Americans who don’t understand this.

Should they be bailed out? No. It does illustrate the need for much stiffer regulation though in the lending industry akin to that in the securities industry. The galling thing about this is that there are a lot of policy makers who should have known how big a risk they were taking by reducing the interest rates so much and injecting so much liquidity into the market (M3).

[LA_Renter]

Interesting thread. What is the role of government and its institutions? Where is the line of personal responsibility? I have somewhat libertarian views on this so Ultimately I put a bigger portion of responsibility on the consumer. Greed has its consequences people. I’ll buy that 750K dollar house although I make 90K a year and have to use a Neg Am Arm to get in because I know that house is going to hit 1.2 in two to three years. Yeah! Fear also has its consequences, you have the person that buys the 750k with a 90K income using an exotic loan for fear of being priced out forever. These are simplistic examples but they highlight the two primary emotions that took over this market, Greed and Fear. IMO government cannot effectively legislate or regulate the actual animal spirits of the market place. There really is no need, MARKETS ALWAYS CORRECT!

Now I think somebody pointed out that the leaders of our institutions, in this case the Fed and Congress, also have a responsibility to the market place and I agree. Let the animal spirits be animal spirits but know when to take the punch bowl away. IMO Greenspan simply mismanaged the last recession. Basically they overshot liquidity into the market and grew too dependent on RE to drag us out of the downturn. Usually American innovation will take over and lead us onto new horizons providing investment opportunities and jobs. Our greatest innovation of this decade has been…..drum role please……….The IPOD!

Here is the risk moving forward. Do you notice all the media and congressional hearings going on right now. IMO the risk moving forward is that those in power will overshoot in the other direction. We may run into a period where credit becomes too tight. You have angry congressman grandstanding and coward lenders looking at all applications under a microscope. Generally corrections have a tendency to overshoot in the other direction. If that happens California is toast. It will also provide some good investment opportunities for those left over with credit and cash.

[PerryChase]

The truth is that people will buy all sorts of things because of the way the products are packaged. There needs to be a modicum of regulations to prevent buyers from being taken by charlatans.

Most average Americans believed their Realtors when they were told they could afford the monthly payments on that $700k house. “Don’t worry, we’ll take care of you. And after 2 years you can sell at a profit and move-up to a better house.” That was all fine as long as the market kept on moving up.

Now I think that we need to let this market crash to teach everyone an important lesson. We put criminals in jail as examples not to follow. We just need to let the speculators (flippers or homeowner-gamblers) go bankrupt so future generations won’t make the same mistakes.

Blaming Greenspan and bailing out the REIC won’t help. When children see their parents loose their homes, they’ll be very unlikely to commit the same mistakes. We need to swallow the bitter pill and hope for recovery.

[Author]

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