Greenspan: "Sub-Prime Mess Not My Fault!"

[Darth Wong]

Link

Feeling betrayed, Greenspan hits back

BARRIE MCKENNA
From Wednesday's Globe and Mail

April 8, 2008 at 9:09 PM EDT

WASHINGTON — Alan Greenspan is mad as hell and he's not going to take it any more.

Tired of being blamed for inflating the credit bubble that triggered the current financial crisis, the 82-year-old former chief of the U.S. Federal Reserve Board has embarked on an international public relations blitz to set the record straight. In interviews and written responses to his critics this week, an unrepentant Mr. Greenspan complained he was often praised for things he didn't do at the Fed, and now he's being unfairly tarred for things he didn't do. The bottom line: He wouldn't undo a single decision in his 18-year tenure at the Fed.

...

Critics have attacked Mr. Greenspan for pushing interest rates too low and keeping them down for too long in 2002-03, when the central bank's key rate remained at 1 per cent for 12 months.

Secondly, they blame the Fed for failing to control an explosion of risky subprime and adjustable-rate mortgages.

Mr. Greenspan acknowledged he didn't see the housing bubble or the mortgage meltdown coming.

But he said it isn't the job of central bankers to thwart or deflate bubbles.

Neither tougher regulation nor tighter monetary policy would have suppressed the real estate bubble, Mr. Greenspan added, taking an apparent swipe at those now intent on re-regulating Wall Street.

“I am reasonably certain that I am right here,” insisted Mr. Greenspan, an early admirer of libertarian philosopher Ayn Rand.

And if someone can prove him wrong, he's ready to take responsibility. “I do not have a vested interest in holding wrong ideas.”

So what is to blame for the credit crisis? Mr. Greenspan points the finger at a global savings glut that pushed interest rates everywhere to exceptionally low levels, in spite of his own efforts to push them higher in 2004. “We tried and we failed,” Mr. Greenspan told CNBC.

Secondly, the core of the subprime mortgage mess “lies with the misjudgments of the investments community,” he wrote on FT.com, the Financial Times website.

...

Since leaving the Fed in 2006, Mr. Greenspan has written a best-selling book, The Age of Turbulence, and launched a successful career as a speaker and consultant to banks and hedge funds. He reportedly commands fees of up to $250,000 (U.S.) for his speeches.

(click link for full article)

What unmitigated gall, for him to be selling his wisdom for an astronomical price while simultaneously saying that he has "no interest" in defending his record.

Fucking Randroid; of course the subprime mess was due to the misjudgments of the investment community. That's why we need regulators, fucktard! Trusting greedy short-sighted people to have good long-term judgment is like trusting a drug addict to think of his future.

[SirNitram]

Poor Mr. Bubble. He didn't do his job and now people are pointing that out.

[J]

Neither tougher regulation nor tighter monetary policy would have suppressed the real estate bubble, Mr. Greenspan added, taking an apparent swipe at those now intent on re-regulating Wall Street.

“I am reasonably certain that I am right here,” insisted Mr. Greenspan, an early admirer of libertarian philosopher Ayn Rand.

And if someone can prove him wrong, he's ready to take responsibility. “I do not have a vested interest in holding wrong ideas.”

20% down, 30% DTI ratio, fixed rate on all mortgages, and it comes with a full credit check which is verified against the person's income tax returns. A real estate bubble isn't going to happen with those rules in place.

[Admiral Valdemar]

He's just trying to cover his arse for when the lynch mobs with torches and pitchforks come out after having been evicted from their suburban properties.

He better pray Bush signs that bill for lending help to the mortgage holders.

[J]

Unlike "Bubbles", former Fed chairman Paul Volcker still has his head on straight.

Bloomberg link
Excerpts:

Volcker said the Fed's loan may send investors the wrong message.

``The extension of lending directly to non-banking financial institutions -- while under the authority of nominally `temporary' emergency powers -- will surely be interpreted as an implied promise of similar action in times of future turmoil,'' he said.

Volcker said the modern financial system has ``failed the test'' of the marketplace. When asked whether he predicts a ``dollar crisis,'' he said, ``you don't have to predict it, you're in it.''

``The bright new financial system, with all its talented participants, with all its rich rewards, has failed the test of the marketplace,'' Volcker said.

Unfortunately he doesn't have nearly as much influence as "Easy Al" Greenspan.

[Boyish-Tigerlilly]

What I find interesting is that, when the sub-prime crisis was getting media attention in December of last year, the Fed. Reserve issued "volutaryist" statements asking banks to regulate themselves and stop doing, essentially.

What the hell good is that? Do they really think they will voluntarily take care of the problem and stop what seemed like a "good thing?" for them?

We've already experienced what happens in the early 30s when regulators ask people to do stuff themselves "nicely."

[Alan Bolte]

But, but, regulators are useless! And they stifle frau- er, innovation!

[Jaepheth]

Wouldn't it help immensely if loan officers didn't get their commission in one lump sum up front, but rather simply got a small slice of each mortgage payment. Then they wouldn't be so eager to get loans for people that can't afford them.

[Darth Wong]

Wouldn't it help immensely if loan officers didn't get their commission in one lump sum up front, but rather simply got a small slice of each mortgage payment. Then they wouldn't be so eager to get loans for people that can't afford them.

That would make them less eager to give out loans. Strangely enough, a tightening of bank credit is also considered an economic crisis by the people who call themselves "economists". So as far as I can tell, they have recently figured out that loose and easy credit is a bad thing. But they're also saying that tight credit is a bad thing.

[Vympel]

That would make them less eager to give out loans. Strangely enough, a tightening of bank credit is also considered an economic crisis by the people who call themselves "economists". So as far as I can tell, they have recently figured out that loose and easy credit is a bad thing. But they're also saying that tight credit is a bad thing.

I assume the latter is because of debt = money. You give someone a loan for $500K, presto, you just invented $500K out of nothing. It's not like they're taking that $500K out of deposits they actually have in their accounts, after all.

At least that's how I understand it.

[The Star Marshall]

Here's a few scary facts for people about the housing and credit disaster we're in the midst of.



"30% of subprime loans written in 2005 and 2006 are already underwater" (owe more on the loan then the collateral is worth).

This a big problem. These people now have no incentive to continue paying there debts, in fact they have a very good reason to stop. They can now get rid of a (warning: made up numbers) $500,000 debt (their mtg) by giving up a $200,000 asset (their home). They can then buy a house down the street of the same size as the one that was foreclosed and only make payments of about 1/2 the size.

"American's percentage of equity in there homes is below 50% for the first time since since 1945"

High CLTV lending has gotten out of control. The rule used to be a 20% down payment, giving you instant equity in your home. Meaning the highest your CLTV would be is 80%, the average mtg originated in 2006 had a CLTV of over 89%. In 2001 the average CLTV was 79%. In 2001 3% of all loans had a CLTV of 100%, in 2006 it was 33%.

I could go on explaining how underwriting standards fell apart in 2005 but I'll just change topics now and move on.

How bad is it going to get? We're currently in the middle of the first and largest wave of adjustable rate and interest only mortgage resets. This wave should continue till roughly February of 2009 and should settle down till April or May of 2010, when the next wave hits.

That second wave of resets should continue till November of 2011, but "luckily" (as if anything about this disaster is lucky) the dollar value of the outstanding loans in the second wave is only about a quarter of the total dollar value of the first wave, though more of these are interest only versus most of the first wave being amortizing adjustable rate mortgages. So the percentage of those loans going to foreclosure could be much higher because of a larger increase in the payment for the borrower, and the real estate market should be in an even weaker position at that tiem compared to now.

An example of the current problems in the real estate market; in San Diego normal home sales in January of 2008 compared to January of 2007 have declined 34%, while foreclosures have increased by 328%. Thats scary...



The majority of this information is from a report titled "Why we are still in the early innings of the bursting of the housing and credit bubbles" by T2 Partners LLC for MBIA and Ambac. This was given to me by my boss, but Its freely available on the internet, (I checked, I wanted to verify I wouldn't be breaking any confidentiality rules by sharing this) some of the above is my interpretation of the date in the report and data from other sources.

Take it for how you want.

[Darth Wong]

Meanwhile, libertarians continue to screech that regulation is not the answer. So what the fuck is the answer? Greenspan's idiocy about expecting business people to exhibit the kind of good judgment that they have just been emphatically proven not to possess?

[tim31]

People often scream they don't like the answer when they don't properly understand the question. The real bad news is when those people actually have power an influence.

[J]

Meanwhile, libertarians continue to screech that regulation is not the answer. So what the fuck is the answer?

Think of it this way, what would Volleyball say? That's the answer they want, which of course isn't right, but hey, it keeps as much money as possible in their grubby little hands, thus maximizing the goodness of the free market model, or something.


Markets work on greed and fear, fear that yes, you can lose the shirt off your back, and fear that stretching the rules too far will land you in a Club Fed. There's no fear left to balance greed, financial institutions now know the Fed and US government have them covered, and will gladly hand out hundreds of billions of loans and come up with creative quasi-legal methods to keep them afloat. If I were a bank and I knew that I could always hit up the Fed for a few dozen billion in loans which can be rolled over indefinitely to pay off my debts, why wouldn't I leverage up to absurd ratios and take risks which even hedge funds wouldn't gamble on? If I go insolvent I can just borrow some more money from the Fed. Sounds like a great deal. It's like gambling in Las Vegas with someone else's bottomless line of credit, I can't go broke and I'm not going to end up in jail, so what's stopping me from putting down $10,000 on "27" at the Roulette table on every spin?

Enforce all existing regulations, add new ones as needed, and make all the parties disclose and eat their losses. A lot of them will go belly up, and quite a few people will end up in jail. After that's sorted out I bet they'll be a lot less eager to pull this crap again knowing they have a Sword of Damocles hanging over them. At least for the next 10 years or so, hopefully.

[Darth Wong]

The really sad thing is that so many people are still resisting the idea of cracking down on these craven kleptomaniac cocksuckers.

What does it take to cure America of this pathologically pro-business anti-society mindset? Jesus himself coming back to life so he can take a shit on Ayn Rand's corpse?

[Flagg]

The really sad thing is that so many people are still resisting the idea of cracking down on these craven kleptomaniac cocksuckers.

What does it take to cure America of this pathologically pro-business anti-society mindset? Jesus himself coming back to life so he can take a shit on Ayn Rand's corpse?

It's gonna take another great depression that sees the middle class really suffering and absolutely needing government welfare just to survive. Even then, I doubt it will really stick to the point of there not being another assault on the programs ala Reaganomics.

Basically the politicians need to be in a place where they are more afraid of violent revolution and total governmental collapse than they are of losing campaign contributions.

[J]

What does it take to cure America of this pathologically pro-business anti-society mindset?

The entire country going belly up and then being taken over by Canada, of course.

[Adrian Laguna]

Question: Why is it that people start screeching like maniacs about stifling the free market whenever regulations are imposed, yet when the free market pulls its infamous 'crash' stunt every so often, suddenly the government has to step in and bail everyone out? What happened to "let the free market be"?

[Fingolfin_Noldor]

Question: Why is it that people start screeching like maniacs about stifling the free market whenever regulations are imposed, yet when the free market pulls its infamous 'crash' stunt every so often, suddenly the government has to step in and bail everyone out? What happened to "let the free market be"?

Greed? After all, they are just about to lose all their ill-gotten wealth.

[Uraniun235]

What does it take to cure America of this pathologically pro-business anti-society mindset?

The entire country going belly up and then being taken over by Canada, of course.

No, because then we'll just going to think you filthy commies engineered the whole thing so you could take away our ridiculous houses and our guns, and then infect us with your socialism healthcare and your generic low-cost drugs.

Also it'll never happen because I'm pretty sure the Canadians would be even more pissed off about that happening than the Americans.

[Crayz9000]

Question: Why is it that people start screeching like maniacs about stifling the free market whenever regulations are imposed, yet when the free market pulls its infamous 'crash' stunt every so often, suddenly the government has to step in and bail everyone out? What happened to "let the free market be"?

Greed? After all, they are just about to lose all their ill-gotten wealth.

Gee, guess they don't like getting smacked by the market's invisible hand. I seem to recall an old saying about having a cake and eating it too...

[Boyish-Tigerlilly]

If something serious does happen, they will just turn around and blame regulations and interference anyway. That's exactly what has happened recently when talking about the Great Depression.

So many economists and "think tanks" are pumping the idea that the government, through regulation and policy, caused the Great Depression. I bet in hindsight, they will blame the government for "overregulation" etc. Spin it just the opposite of the problem.

[PeZook]

I assume the latter is because of debt = money. You give someone a loan for $500K, presto, you just invented $500K out of nothing. It's not like they're taking that $500K out of deposits they actually have in their accounts, after all.

At least that's how I understand it.

It is somewhat like this. If you give too much credit, and when people can't pay it - a situation not dissimilar to a "run on the bank" happens, except in reverse. The banks are a loangiver and a debtor, after all, just like most consumers.

When there is too little credit, the growth slows down. And some people have to understand that it's not necessarily a bad thing! An overhreated economy gets ahead of itself, because of inefficiencies in adjustment of the money supply to the read goods produced. And even a minor hiccup then can cause a snowball, which is why a modest, steady growth is the way to go.

Poland has avoided a major economic crash just because we had a sane man in charge of monetary policy. Of course, there were plenty of idiots who screeched and howled over his rate increases, but fuck 'em.

You know, we really need to move away from this monetary model. We need a money supply which can be lowered or increased dynamically, to minimize the time lag. I'm leaning more and more towards establishing a single, centralized bank which would distribute electronic currency to the market directly, essentially reducing the "debt" part of most money aggregates. But untill we get good enough to totally manage our economies with near-100% efficiency, a good monetary system simply won't happen.

[Darth Wong]

[Admiral Valdemar]

On the other hand, the emo-tastic ranting on radio and TV from families experiencing mortgage rate increases despite the BoE cut the other day is getting annoying. Bad as the banks were (and government) in offering such stupid products, the people who fell hook, line and sinker for it are as much to blame. I sure as fuck am not keen on having my tax payer's doll-, pounds, pay towards bailing people out who failed economics 101.

Can't pay for your McMansion and have fancy holidays and consumer products to go with the lifestyle? Tough.