Greenspan “didn’t really get it”. Unreal.

[lindismith]

From today’s WSJ online.

September 13, 2007, 12:00 pm
‘60 Minutes’: Greenspan Praises Bernanke

60 Minutes scored an interview with former Fed chief Greenspan and previewed some of the highlights in a press release today. Here is the text of the CBS release.

September 13, 2007
FORMER FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005 – “60 MINUTES” SUNDAY

He Defends His Lower Interest Rates that Critics Say Caused the Subprime Meltdown and Praises Chairman Ben Bernanke for His Handling of the Current Market Turmoil

Former Federal Reserve Chairman Alan Greenspan admits he “didn’t really get it” that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network.

Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,” he tells Stahl. “I really didn’t get it until very late in 2005 and 2006.”

Even though one of the Federal Reserve governors raised a red flag on those lending practices, Greenspan says there was little he could do. “Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it’s very difficult for banking regulators to deal with that,” says Greenspan.

Several of Greenspan’s former Federal Reserve governors have since said that Greenspan’s policy of lowering interest rates for three consecutive years early in the decade was wrong because it opened the door for the subprime lenders. They think he kept rates too low for too long. “They are mistaken,” Greenspan tells Stahl. “It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low,” he says.

Some believe today’s market slide – U.S. stocks have lost significant ground over the past few months – could have been slowed had the current Federal Reserve Chairman Ben Bernanke lowered interest rates like Greenspan did early in the decade. Would he act as dramatically and quickly now as he did then if he were the current chairman as some believe? “I’m not sure that’s true,” says Greenspan. “We were dealing in an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can’t do that anymore….I’m not certain I would have done anything different [if he was the chairman today],” he tells Stahl. “I think [Bernanke] is doing an excellent job.”

[cr]

Interesting he had no idea how bad it was, but knew it was going on, and still decided to leavea one of the most influential positions in the world immediately after.

I’ll have to re-read it. Maybe by didn’t know, he meant didn’t care.

Some believe today’s market slide… could have been slowed had the current Federal Reserve Chairman Ben Bernanke lowered interest rates like Greenspan did early in the decade.

I still don’t get this. Low rates got us here. Lowering them now, will only make things worse after the short-lived rally that comes as an immediate result.

People are out of money, out of equity, and out of credit to fuel our debt society any longer.

[JWM in SD]

Coop,

I hear you, but it’s like I’ve been saying all along. Most people do not really understand what is going on…they don’t get the macro level big picture and rely on the mouth breathing media to tell them what is happening…so naturally they think that lowering rates is good.

[lindismith]

yeah JWM, the lowering rates issue just prolongs the pain. We need a correction. We just don’t want a big jolt. We need a slow, ease-into-it correction. This takes finesse. I don’t know if Bernanke can manage that.

[lindismith]

Regarding Greenspan: I have a hard time believing what he’s saying. He had teams of people running all kinds of analysis on the situation. I just have to imagine that someone spoke up at some point.

[Bugs]

I flat out don’t believe him. If he knew they were making junk loans and he knew that prices in some markets were skyrocketing on the backs of those junk loans, how could he possibly not recognize the risks?

[SHILOH]

I think Greenspan knew the effect and did nothing acting like a lunatic – he used his power to create and watch his economic experiment.

How could this “expert” not know the outcome?
I don’t think Greenspan cares what happens to middle America. He has all his wealth and his “speech” money at about $100K a shot.

It begs the question — he and the others like those in the millionaires club that we call the Senate and Congress —
what are they REALLy experts at?

[lindismith]

Do you think that the power just goes to their heads? It’s like they don’t have both feet on the ground?

These hedge funds that keep imploding are the same situation: these managers know what they’re doing. Are they just playing a game until the gig is up? It’s like they’ve got that much money that if the thing collapses it just doesn’t matter to them.

How much did Greenspan personally make out of this whole debacle?

Who can enlighten me?

I work my ass off, and the people in charge seem to be taking advantage of me at every corner. I didn’t sign up for this.

[patientlywaiting]

If I remember well, Greenspan believed in the new paradigm. He thought that info-tech and new financial products would allow the financial leaders to “fine tune” the economy just like a car computer adjusts the air-fuel mixture for optimal driving. From then on, we would only have minor recessions. The “check engine” light would turn on before major damage is done. The next few years will be the true test of the Greenspan doctrine.

CEOs generally bought into this mentality as well. Remember the frictionless business model managed by computers? Data mining would allow businesses to “instantly” react to changing business environment.

Dell built all those assembly and distribution plants to “instantly” serve customers. But now their model is antiquated as laptops are shipped directly from China via DHL. Dell is weighted down by stateside costs whereas HP concentrates on design then ships directly from China.

[The OC Scam]

Have you all forgot[img_assist|nid=4785|title=The Leader of the free world|desc=|link=node|align=left|width=396|height=500] this article from 2004????

He knew and encouraged it. Where is the truth I ask my fellow americans???? Where???? By the way I’m paying my rent again!!!llllol

Greenspan says ARMs might be better deal
By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY
WASHINGTON — Federal Reserve Chairman Alan Greenspan said Monday that Americans’ preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.
In a standing-room-only speech to the Credit Union National Association meeting here, Greenspan also said U.S. household finances appeared generally sound, despite rising debt levels and bankruptcy filings. Low interest rates and surging home prices have given consumers flexibility to manage debt, he said.

“Overall, the household sector seems to be in good shape,” Greenspan said.

AP file
Greenspan

Americans have been buying homes and refinancing mortgages at a record pace in the past several years, lured by low interest rates. Most mortgages are fixed rate, so consumers can prepay when rates go down but do not face higher costs if rates rise. Under adjustable-rate mortgages (ARMs), which made up about 28% of mortgages in January, borrowers usually have lower initial rates but face the risk of higher payments if rates in the broader economy rise.

While borrowers can refinance fixed-rate mortgages, Greenspan said homeowners were paying as much as 0.5 to 1.2 percentage points for that right and the protection against a potential rate rise, which could increase annual after-tax payments by several thousand dollars.

He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan said.

Joseph McKenzie, deputy chief economist at the Federal Housing Finance Board, says buyers like the stability of fixed-rate mortgages, but there is increasing flexibility in products. “There are lots of innovative programs, especially targeting low-income and first-time buyers,” he says.

The Mortgage Bankers Association said the average rate for a 30-year fixed mortgage in the week ended Feb. 13 was 5.46%, compared with 3.27% for a one-year ARM. Mark Zandi of Economy.com says that although Greenspan is technically correct, for some borrowers, including those with high debt, fixed-rate mortgages may be a better bet.

[patb]

greenspan got senile

and he cut a deal with bush to keep him in if he would trash social security

[larrylujack]

shades of the s and l crisis (remember that?) and laissez faire capitalism, not surprising at all- what did you expect from an admirer of Ayn Rand anyway?

[capeman]

That is a bunch of BS. He knew exactly what was going on and let it happen by keeping rates low. If he actually didn’t know then I would say at least half the people on this board are more qualified to run the Fed than he was!

He’s just going to pull what many before him have when brought before Congress after this whole mess breaks…. “I don’t recall ever having that knowledge… I don’t recall anyone telling me about the problem…”

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