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

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

  1. Ha ha, no easy credit now because too many bets not paid yet. Easy credit was for one purpose. To have more morgage backed securitys to bundle, sell, bet against, make money fast, and sell the risk to another person. Musical chairs like Pabst said. No one care about tomorrow, only about the day. Then they blame poor people who they say are greedy to take out that loan. So much lies. Yes people took a loan when it was cheap, but why so cheap with all the risk? Bank people are not so stupid to offer those loans without a plan. You know that Pabst.
    #51     Mar 12, 2009
  2. I don't know what's more disturbing: the fact that this incoherent idiot was once in charge of our central bank or the fact that he is able to get such sympathetic support from higher echelons of media (Wall St Journal, CNN, etc) considering what he has done.

    I suspect with the help of a sympathetic media, he'll eventually repair his name and will be considered one of the greatest economic minds of the 20th century.

    Just unbelievable!
    #52     Mar 12, 2009
  3. zzt


    i'm sorry, but highlighting the fact that the correlation between the long and short end broke down, says zero about the cause effect relationship between flooding a monetary system with money, and the resulting asset price bubbles.
    #53     Mar 12, 2009
  4. So is there or isn't there a correlation between mortgage rates and fed funds rate? I've seen the charts and read a few sites and I must say there is.
    #54     Mar 12, 2009
  5. Arnie


    You know who really caused it?

    Greedy buyers and sellers, aided by greedy, risk challenged bankers aided by money grubbing, vote buying politicians.:D
    #55     Mar 12, 2009
  6. Before it all got to be recognized as a bubble, I did a refi. The mortgage guy asked if I was "willing to document my income?"...

    My reaction was "WTF?" He said I'd get a lower rate if income was documented...

    90% of this mess might have been avoided without "no doc" [aka LIAR] loans.
    #56     Mar 12, 2009

  7. Don't confuse correlation with cause and effect. Mortgages trade at a spread to long dated Treasuries, i.e. 10's and 30's.
    The economic factors effecting the trader/market derived yield of Treasury securities produce the very same information driving FOMC policy.

    Greenspan often testified that the 2yr "made him do it." IOW's if the market receives "good" economic data then traders take Treasuries higher in yield (lower in price). After the "market" reflected bullish economic sentiment the FOMC would then raise the Funds rate in kind.

    This may shock inside the box ET'ers but it's just as possible that Greenspan's rate hikes from 2003-2006 were contributory to the lending crisis than his rate cuts during the legitimate 2001-2002 recession abetted asset appreciation.

    You all need to understand if policy and it's ramifications didn't produce nuanced, ambiguous results then we'd game it freely and be rich.
    #57     Mar 12, 2009
  8. Cutten


    So why did the UK, Ireland, Spain, E Europe have a housing bubble too?
    #58     Mar 12, 2009
  9. Good point, excellent question.
    #59     Mar 12, 2009
  10. Cutten


    Ok that is fair enough, but your post came off as saying that anyone criticizing Fed policy was a dogmatic fundamentalist. Many people who take the laissez-faire position on this issue are also doing so with an open-mind and not out of dogmatism. As for the fundamentalists, it is a total waste of time to address them because they won't listen to evidence or change their minds if the facts change.

    Back to Greenspan - I find his point of view contradictory. On the one hand he has said easy monetary policy can start bubbles or at least inflate them more than normal monetary policy. He also thinks that easy monetary policy can ease the effects of financial crises and recessions, as shown by his cuts in the early 90s, 98, and after the tech bust. Yet on the boom side, suddenly he thinks central banks are impotent?

    Either the central bank is powerless both in booms or busts (in which cash abolish it), or it can make a difference - in which case go countercyclical in both directions, booms as well as busts. What is it about bubbles that makes them impossible to prick, when he believes recessions or depressions can be stopped by Fed policy?

    Greenspan is trying to have his cake and eat it.

    Alan Greenspan - 'I dont know of a single case in history where regulation has defused a bubble, if there was a simple way to do it I would be all for it'

    My corollary would be - I don't know of a single case in history where regulation has stopped a bust. If there was a simple way to do it I would be all for it.

    Despite all the clamour in society and on this board for government action, so far I don't see 2008-2009 showing any evidence that the government or central banks have miraculously developed the ability to make busts disappear through regulation and policy actions.
    #60     Mar 12, 2009