Greenspan explains in a simple way why fed funds decoupled(as shown by breakdown of correlation) from mortgage rates and why the 'greenspan conundrum' occured. If you believe in fed bashing, you believe in a religion created by free market extremists, bloggers and perma government bashers http://online.wsj.com/article/SB123672965066989281.html
This is an excellent appraisal by Alan Greenspan. It was always clear that the Fed did not cause the housing bubble but as demonstrated repeatedly by the simple minded at ET and by politicians and the public at large, they require scapegoats for crises. The Federal Reserve is a major scapegoat for the simple minded and the unthinking.
To claim the Fed (specifically GreenScan) did not "cause" the crisis is picking nits. The actual beginning of the mess (can we use the word "caused" here?) was the DemoCraps Affirmative Action Lending legislation in 1999. THAT'S undeniable. GreenScam contributed MIGHTILY to the crisis and bears HUGE responsibility... Don't forget, the first thing Greenie did after leaving the Fed was call a press conference to proclaim, "It wasn't MY fault"... LIAR! And yes, I AM a Fed Basher!!!
it can't be any more clear that greenspan and his cronies engineered the bubble. consciously or unconsciously they acted for the few at the expense of many. it all goes back to the banks and the manipulation of the money supply. without that tool even the politicians are limited to rhetoric.
"Our challenge in the months ahead will be to install a regulatory regime that will ensure responsible risk management on the part of financial institutions, while encouraging them to continue taking the risks necessary and inherent in any successful market economy." An interesting challenge.
This is the definition of chutzpah. Greenspan's hands are all over this mess, and he would like to distract folks by getting into this crap about conundrums and overseas savings. Ok. Gman. Let's forget holding the FF at 1% while the economy was growing and then raising it too slowly after your mistake was obvious. How about flooding the economy w/dollars after the 87 crash? How about holding FF at 3% for several years while the economy took off in the early 90s? How about the Mexican bailout in 94? How about the LTCM bailout? How about flooding the world with money in the run-up to the fictional Y2K? How about his classic speech lauding the adjustable rate mortgage that he gave shortly before jacking the FF rate up from 1% to 5%. Is anybody seeing a pattern? Greenspan was an easy money guy. His policies didn't lead to inflation of the CPI, but instead to inflation of asset values. His legacy is correctly ruined. No one man or policy is to blame for this mess, but I can't think of anybody or anything else who holds more blame. Now please go away asshole.
Alan is being quite a bit disingenuous in his explanation. Firstly, he's cleverly utilizing a logical fallacy that assumes that the bubble can only have one cause, either a low funds rate or low mortgage rates. Because, he argues, low mortgage rates are, ultimately, to blame, it's not the low funds rate, so it's not his fault. In reality, looseness of money was due to both phenomena occurring and, had Alan paid attention, he may have been able to actually do something. Secondly, the Fed's mandate doesn't limit them to operating solely through the funds rate (as we have seen recently). Had Alan been properly motivated he would have possibly come up with ways of preventing the accumulation of excessive leverage. In general, I think he's just playing games and trying to sweet-talk his way out of the responsibility. I don't buy it. It's not all his fault, but he should definitely take some of the blame.
Obviously the Fed didn't cause the housing bubble single-handedly, since numerous other countries had housing bubbles outside the USA. However it is striking the correlation between the very low rates from 2001 onwards and the inflation of the housing and credit bubble in the following years. Almost as striking as the dot.com bubble going parabolic after the LTCM bailout in 98 and the Y2K liquidity infusion (which he at least followed by aggressive rate hikes soon after). However, the Fed definitively did *nothing whatsoever* to stop the housing bubble accelerating for years, following Greenspan's "don't stop the bubble in advance, clean up the mess afterwards" policy i.e. the exact opposite of the traditional "take away the punch bowl" strategy for central banks. Daal, do you think that Greenspan's hands-off policy towards bubbles has worked well? Let me guess: "Yes it's worked perfectly, and anyone who disagrees is a religious fundamentalist Austrian nutcase". Like makloda recently, you are sounding more and more like a politician trying to score points through debating tricks, assertions, straw man arguments and ad hominem attacks, rather than someone interested in trying to find out the causes of economic problems by looking at facts and evidence. There seems no shades of grey, no partial agreement or disagreement, everything in your recent posting is black and white. All that will do is bias your trading and cause people to lose respect for your posting.