Alan Greenspan: "The Fed Didn't Cause the Housing Bubble"

Discussion in 'Wall St. News' started by Daal, Mar 11, 2009.

  1. Alan is a joke, keep pretending it's the 90s, you'll be far happier.

    WSJ stand today for "brainwashing educated people". Notice I said educated not smart or wise or anything else.
    #31     Mar 11, 2009
  2. for all those who blame greenspan for the mess, how is it possible for him to have done so if there no correlation between fed funds rate and mortgage rates? what are your guys arguments? so what if he kept fed funds rate low? what does that mean?
    #32     Mar 11, 2009
  3. eagle


    If you argue, you lose. If the person repeatedly argue to refuse accepting being wrong especially when you didn't ask/blame too much then it hints that the person was responsible.

    If somebody can prove that all the money that were used to bid and buy those houses are not borrowed-money (only pure reserved cash) then the Fed wasn't been involved.
    #33     Mar 11, 2009

  4. If lowering the fed funds rate has no effect why did he do it at the first sign of any trouble? Asian currency crisis, LTCM, Y2k, etc.

    Even if you argue that the effects were just psychological, he knew that the market reaction would be mostly positive, though the economic situation didn't warrant it.
    #34     Mar 11, 2009
  5. If a bubble in another asset class develops in 2011 then where are the pre-emptive Bernanke critics?
    #35     Mar 11, 2009
  6. In many cases, there was NO regulation.

    No regulation of CDS due to Mr. Phil Gramm and his associates Dick Lugar and Peter Fitzgerald back in December of 2000, along with the fact that insurance companies like AIG fall below the radar because there is no national insurance regulator; only state insurance regulators.

    Add to that, a Fed Chairman that embraced Ayn Rand ideology to the extreme and assumed that markets did not fail or distort, and were self-regulating - - - and you have a recipe for DISASTER.
    #36     Mar 11, 2009
  7. eagle


    People are smart enough to realise the bubble pain as we're experiencing right now. So they don't repeat the same mistake until the next generation.

    #37     Mar 11, 2009
  8. Oh there are a lot of Benanke critics. And there were a lot of Greenspan critics before the current crisis. Oh and by the way he was primarily responsible to the interenet bubble too if you couldn't figure it out.
    #38     Mar 11, 2009
  9. I hope you're kidding. I'm 48 and I've lived through the 50% stock break in 1970, the 50% break in 1974, the gold markets 75% implosion in 1980, Long Bond prices busting by 50% from 80-84, farm acreage breaking 75% in 1986, the '87 crash, L.A. real estate losing 42% in 90's, the Tech collapse and now this. So please tell me about "generational" experience.

    Trivia: Which period saw bigger American stock market losses: 2000-2002 or 2007-2009?
    #39     Mar 11, 2009
  10. It is not long-term rates as such that fueled the Housing bubble, but rather the monetary pumping by the Fed.

    "We suspect that because of the aggressive lowering of interest rates between December 2000 to June 2003 the Fed had pushed the federal funds rate target below where market conditions would have dictated. This means that to prevent the federal funds rate from overshooting the target the US central bank had to aggressively push money into the economy. The yearly rate of growth of monetary pumping, as depicted by the Fed’s balance sheet also known as Fed Credit, jumped from negative 2.7 per cent in December 2000 to 9.8 per cent as of June 2003. At one stage in September 2001 the yearly rate of growth climbed to 12.2 per cent. The possibility that the fed funds rate target was far too low is also “supported” by the Taylor Rule. According to the Taylor Rule in May 2004 the target was below the so-called “correct” rate by 2.3 per cent.

    In response to this pumping we suggest that the yield on the 10-year Treasury Note fell from 5.11 per cent in December 2000 to 3.5 per cent by June 2003. During that period the 30-year fixed mortgage interest rate fell from 7.38 per cent to 5.23 per cent. What about the discrepancy between short-term and long-term interest rates during June 2004 and June 2005 that Greenspan presents as the case to absolve himself from current financial instability? Historically the 30-year fixed mortgage rate and the federal funds rate has had a tendency to display a very good visual correlation. This doesn’t mean that the correlation is perfect — a discrepancy in the movements between the fed funds rate and long-term rates can occur. The emergence of a discrepancy doesn’t imply however that all of a sudden Fed’s policies have nothing to do with the housing bubble and boom-bust cycles.

    Various discrepancies between the movement in the fed funds rate and the mortgage rate is on account of a time lag effect from changes in monetary policy and economic activity. On account of the time lag a situation could emerge that long term rates could ease notwithstanding the central bank’s tighter interest rate stance. Despite a tighter interest rate stance the past loose interest rate stance may still dominate economic activity. Hence despite a tighter interest rate stance the fed funds rate target could still be too low. In order then to prevent the fed funds rate from overshooting the target the Fed may be forced to push more money into the economy. As a result more money becomes available for financial and bond markets, which puts downward pressure on long-term rates.

    In November 2004 the yearly rate of growth of Fed’s Credit (Fed’s balance sheet) jumped to 7.2 per cent from 4.5 per cent in June 2004. Note that this increase in the pace of monetary pumping took place whilst the fed funds rate target was lifted from 1 per cent in June to 2 per cent in November. Also note that between December 2004 and June 2005 the average yearly rate of growth of Fed Credit stood at still elevated 6.2 per cent. (The economic activity was gaining strength during June 2004 to June 2005 — the yearly rate of growth of industrial production climbed from 2.5 per cent in June 2004 to 4.2 per cent by June 2005).

    We can thus conclude that the current financial markets instability is more than likely to be the product of Greenspan’s Fed policies. We also suggest that contrary to Greenspan a bubble cannot emerge without a preceding increase in the monetary pumping by the central bank. "

    Dr. Frank Shostak
    Nov. 5, 2007
    #40     Mar 11, 2009