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Who, Me? Yes You!(Schiff:'Greenspan fathered the housing bubble/crisis' )
Safe haven /Europacific Capital ^ | May 15, 2009 | Peter Schiff

Posted on 05/15/2009 8:10:42 PM PDT by sickoflibs

When, during the invasion of Iraq, the United States Government issued its famous deck of playing cards with the 52 arch villains of the Iraqi police state, Saddam Hussein's face adorned the Ace of Spades. If the Obama Administration wanted to engage in a similar public relations campaign for the real estate crisis, the top card should be reserved for Alan Greenspan.

Yet in a speech this Tuesday before the National Association of Realtors, Sir Alan "the-bubble-blower" claimed that his low interest rate policies in the early and middle years of this decade had no effect on mortgage rates or real estate prices. As a result, he claims no responsibility for the subprime mortgage crisis. But even current Treasury Secretary Timothy Geithner, who shared interest rate policy responsibility as governor of the New York Fed during the Greenspan regime, recently admitted that overly accommodative policy helped inflate the bubble. So what does Greenspan know that everyone else doesn't?

His primary defense is that mortgage rates were a function of long-term interest rates which were simply not responding to the movement in short term rates, which he did control. While it is true that the flow of capital from foreign creditors with excess dollars did keep long rates low despite rising short rates, this "conundrum" was not the leading factor in the housing bubble. Although rates on thirty-year fixed rate mortgages are based on long-term bonds, by 2005 such loans had become an endangered species. The housing bubble was all about adjustable-rate mortgages with 1-7 year teaser rates primarily based on the Fed funds rate.

The rock bottom teaser rates, permitted by the 1% Fed funds rate, were the primary reason that many home buyers were able to qualify for mortgages they couldn't otherwise afford, and in turn, to bid up home prices to bubble levels. By pushing down the cost of short-term money, the Fed enabled homebuyers to make big bets on rising real estate prices. Without the Fed's help, few borrowers would have "qualified" for these risky mortgages and real estate prices never would have been bid up so high.

Greenspan expresses exasperation now, as he did then, that his careful nudging of interest rates higher by quarter point increments did not translate into corresponding increases in long-term rates. Unfortunately, according to Greenspan, the markets would not cooperate with his wise guidance, and to his dismay, mortgage rates fell despite his best efforts. As they say in Texas, this dog will just not hunt. If the "measured pace" of his quarter point hikes were too slow to produce the desired effect, why didn't Greenspan jack up the pressure? With interest rates far below the official inflation rate for many years during the bubble, he certainly had plenty of room to maneuver. The claim that he was unhappy results of his rate hikes, despite his having done nothing to adjust that policy, is ridiculous.

In addition to his colossal errors on interest rate policy there were many other ways Greenspan blew air into the real estate bubble. One example was what the market called the "Greenspan put." By creating the perception in word and deed (since proven accurate) that the Fed would backstop any major market or economic declines, lenders became more comfortable making risky loans. In an often quoted 2004 speech, Greenspan went so far as to actively encourage the use of adjustable-rate mortgages and praised home equity extractions for their role in contributing to economic growth. In fact, rather than criticizing homeowners for treating their houses like ATM machines, he often praised the innovative ways in which such homeowners were "managing" their personal balance sheets. Greenspan was as much a proponent of leverage for homeowners on Main Street as he was for bankers on Wall Street.

The bottom line is that Greenspan fathered the housing bubble and now he refuses to acknowledge kinship of his wayward child. His denial of responsibility is an act of stunning bravado, and is a testament to his ability to turn even the simplest of situations into an impenetrable tangle of theories and statistics. The private sector jokers who now hold top dishonors in our pack of economic villains are easily trumped by the Maestro. The fact that Greenspan still has any credibility shows just how little understanding the general public, including Wall Street and the media, actually have about this crisis.


TOPICS: Business/Economy; Editorial; Government; News/Current Events
KEYWORDS: economy; geithner; greenspan; maestro; peterschiff; schifflist
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To: dalereed

I’m going to have to take issue with this post. Debt is necessary in an economy which wants to expand. If you’re referring to people who live off of easy credit, who charge every purchase on credit, and who are debt up tho their eyeballs with no sound way to repay this debt, then I agree. That needs to stop and the market has ways of punishing that behavior.

But most businessmen can’t afford what they need to expand /start-up unless they go into debt. Most people wouldn’t be able to own cars or homes if they couldn’t go into debt. The reason is because these purchases are large, and people don’t make all their income at once.

As for the housing bubble, cheap money is always influential in bubbles, going back to the Mississippi and South Sea bubbles. The new money and lower interest rates fuel speculation and bubble activity while it is generally some sort of government policy or fad of the time that directs where that money will go.


61 posted on 05/18/2009 8:31:39 AM PDT by djsherin (Government is essentially the negation of liberty.)
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To: djsherin

I’ve never borrowed one cent including running a business that employe an average of 25 people for over 40 years.

The only money i’ve borrowed was a first mortgage on our first home.

Everything else was paid for in cash including cars, my airplane, and our condo which we currently use as our residence and our home as a second home.

I grew up in the depression and that’s how I was raised and that’s how my parents lived.

They saved enough durring the depression to start the business without borrowing and built their home in an upscale neighborhood in 1936 and only borrowed a 1st on that home and never for anything else.

I have nothing but contempt for anyone that buys things on credit.

Of the hundreds of people that I had as employees I can count on my 2 hands the ones that had more than a pot to piss in and they paid cash for everything they had. The rest were in hock up to their asses and never had anything worth talking about.


62 posted on 05/18/2009 8:47:59 AM PDT by dalereed
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To: dalereed

I commend you. Growing up in an entirely different generation that lives off loans, grants, debt, and their parents money, I am most envious of the generation that has the audacity to save rather than consume.

But their is a difference between that kind of debt and the kind needed to fund the modern economy. Nobody I know has the money to pay for a house out right. I believe putting money down is a very important and necessary step to acquiring a mortgage, but nonetheless, the mortgage must be acquired and that is debt.

I also commend you for your business. I hope things are going well for you now. My dad owned a pizza place which he sold about a year ago. I realize how difficult running a business can be. But not all businesses can operate from money they have on hand. So long as they can provide a steady stream of payments to the creditor (or in other words, prove their creditworthiness as determined by the creditor) there is no problem with debt. Businesses sell bonds all the time.

I’m not by any means advocating that everyone go out and buy a bunch of things on credit. What I’m saying is that many people can not do without debt to finance their aspirations, and the determination of who should qualify for saved funds should come from creditors, the people who risk losing their money. Don’t get me wrong, this country NEEDS a nice sweep of fiscal discipline and I believe that will be coming soon enough.


63 posted on 05/18/2009 10:09:31 AM PDT by djsherin (Government is essentially the negation of liberty.)
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To: djsherin; dalereed
What I’m saying is that many people can not do without debt to finance their aspirations, and the determination of who should qualify for saved funds should come from creditors, the people who risk losing their money. Don’t get me wrong, this country NEEDS a nice sweep of fiscal discipline and I believe that will be coming soon enough.

I agree with both of you. Some businesses need loans and are very conservative about the risk and their ability to repay. On the other hand, we have others playing craps with (or maybe stealing) someone else's money, and then asking Bush/Obama for help.

64 posted on 05/18/2009 1:15:05 PM PDT by ding_dong_daddy_from_dumas (Obama's multi- trillion dollar agenda would be a "man caused disaster")
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To: dalereed
I love your way -- that is the way I was raised. It was makes the current practices so maddening.

Remember California's Prop 1C in 2006? It authorized the selling of $2.9 billions in bonds for the "Housing and Emergency Shelter Trust Fund Act of 2006." That included over $1 billion in grants and loans for "downpayment assistance" for low- and moderate-income homebuyers.

I agree that those who couldn't afford to buy homes, but did, were deadbeats. But they were aided and abetted by government at many levels along with unscrupulous mortgage sellers who cared only about a commission. That those mortgage holders then sold them up the daisy chain to even more unscrupulous characters is criminal racketeering, in my book.

65 posted on 05/18/2009 3:12:16 PM PDT by calcowgirl (RECALL Abel Maldonado! - NO on Props 1A 1B 1C 1D 1E 1F)
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To: sickoflibs; rabscuttle385; Southack; Clintonfatigued; fieldmarshaldj; BillyBoy; chicagolady; ...

A friend of my mother’s, A Catholic priest from South America, here legally, sent by the church, there was some problem and he just had to go back for a few months to reapply for something.

Meanwhile a hundred more people walk into Texas.


66 posted on 05/18/2009 3:34:20 PM PDT by Impy (RED=COMMUNIST, NOT REPUBLICAN)
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To: Impy
The Choice is Clear

NO LIBERALS!


The LIEberman, Dodd, and Simmons Trio

67 posted on 05/18/2009 5:33:30 PM PDT by BillyBoy (Impeach Obama? Yes We Can!)
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To: ding_dong_daddy_from_dumas; rabscuttle385; calcowgirl; sickoflibs; Southack; Clintonfatigued; ...
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68 posted on 05/18/2009 6:14:39 PM PDT by BillyBoy (Impeach Obama? Yes We Can!)
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To: BillyBoy

Hopefully, Blunt, McCain, and Crist will lose their primaries.


69 posted on 05/18/2009 6:22:52 PM PDT by Clintonfatigued (The McCain/Palin ticket was like a Kangaroo, stronger on the bottom than at the top)
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To: Clintonfatigued

Hopefully they ALL lose their primaries, though it’s much harder with the incumbents. I don’t think McCain will be defeated in the primary. The most liberal Republican up for re-election in this cycle is probably Murkowski. She’s much more liberal than McCain has ever been, and has no business representing the heavily conservative state of Alaska. The only reason she’s in office is because her RINO daddy handed her that job on a silver platter and Republicans held their nose for her in November to prevent the liberal RAT from winning.


70 posted on 05/18/2009 6:39:12 PM PDT by BillyBoy (Impeach Obama? Yes We Can!)
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To: BillyBoy; Clintonfatigued; fieldmarshaldj; AuH2ORepublican; yongin; DanZanRyu; Norman Bates; ...

It will likely be Sununu rather than RINO Bass but I’m sure they’d beg him if Sununu passed.

Cornyn is just awful, to him the more liberal=the more electable.

Lisa Murk definitely needs to be primaried. Palin still has work to do as Governor and if she wants to run for President should definitely not run for Senate.

If she doesn’t win national office she should run against Begich in 2014.

LT Guv Steve Parnell is listed as a possible candidate. I’m not optimistic this RINO will be challenged.

Alaska is very similar to Kansas. 3 parties, Conservative GOP, RINO (very corrupt in Alaska’s case) and Rat.

I’m hopeful Rubio can beat Crist, he has a chance at least. I fear McStain will win easily though.


71 posted on 05/19/2009 2:47:44 AM PDT by Impy (RED=COMMUNIST, NOT REPUBLICAN)
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To: BillyBoy; Clintonfatigued; fieldmarshaldj

Dodd looks like french toast and our best shot at a pickup in the Senate. We need Schiff to enter for it to be a worthwhile one.

In case he doesn’t is Sam Caligiuri any better than Simmons? I seem to recall him being discussed before and that he’s no conservative.


72 posted on 05/19/2009 2:52:30 AM PDT by Impy (RED=COMMUNIST, NOT REPUBLICAN)
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To: Impy

In New Hampshire, I’m hoping that Steve Merril comes out of retirement. I’d prefer him to Sununu. And if we have to resort to Bass as the nominee, our situation in New England is even more dire than I thought.

In Alaksa, Steve Parnell will probably primary Don Young, whom he nearly defeated last year.

It’s unfortunate that so many competitive races are in states that went for Gore, Kerry, & Obama.


73 posted on 05/19/2009 9:57:59 PM PDT by Clintonfatigued (The McCain/Palin ticket was like a Kangaroo, stronger on the bottom than at the top)
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To: Clintonfatigued; fieldmarshaldj; BillyBoy; yongin

I want Merrill to run also.

Terrible Senate map. Only 2 McCain states have rat Senators up.

Dorgan in ND, vulnerable only if the Governor runs.

Lincoln in Arkansas, the elderly leading Republican in the race so far just referred to Chuckie ShoeMer as “that Jew”.


74 posted on 05/20/2009 6:06:00 AM PDT by Impy (RED=COMMUNIST, NOT REPUBLICAN)
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To: dalereed; calcowgirl
RE :”Anyone that lives on borrowed money should lose everything they have!...Either earn and pay your life or quit taking up space on this planet.

Do you get a Social Security Check or Medicare? Any idea where that money comes from?

Hint1: Not from a trust fund! Hint2:Not from those that get benefits.

75 posted on 05/21/2009 9:47:53 AM PDT by sickoflibs (Obama /Pelosi/Bush Theme : "A dollar borrowed or printed is a dollar earned!")
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