Greenspan Says ...

[slandmarks]

http://biz.yahoo.com/ap/070907/greenspan_remarks.html?.v=2


Report: Greenspan Says Turmoil Like '98
Friday September 7, 12:03 am ET

Report: Former Federal Reserve Chairman Alan Greenspan Says Market Turmoil Like 1998, 1987

NEW YORK (AP) -- "The human race has never found a way to confront bubbles," former Federal Reserve Chairman Alan Greenspan said Thursday in reference to the euphoria that can precede contractions, or reactions, like the current market turmoil, according to a published report.

Greenspan, speaking to economists in Washington, D.C., compared the turmoil to that of 1987 and in 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed, The Wall Street Journal reported on its Web site. "The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 3/8 1907," Greenspan said at the event organized by the Brookings Papers on Economic Activity, according to the Journal.


Greenspan, now a private consultant, said euphoria takes over when the economy is expanding and leads to bubbles, "and these bubbles cannot be defused until the fever breaks," the Journal said. Bubbles can't be defused through incremental adjustments in interest rates, he suggested, the paper reported. The Fed doubled interest rates in 1994-95, and "stopped the nascent stock-market boom," but when stopped, stocks took off again. "We tried to do it again in 1997," when the Fed raised rates a quarter of a percentage point, and "the same phenomenon occurred."

 

[Capricious]

Greenspan also said the following in 2004:




Greenspan says ARMs might be better deal
By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY

WASHINGTON ? Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.
In a standing-room-only speech to the Credit Union National Association meeting here, Greenspan also said U.S. household finances appeared generally sound, despite rising debt levels and bankruptcy filings. Low interest rates and surging home prices have given consumers flexibility to manage debt, he said.

"Overall, the household sector seems to be in good shape," Greenspan said.

Americans have been buying homes and refinancing mortgages at a record pace in the past several years, lured by low interest rates. Most mortgages are fixed rate, so consumers can prepay when rates go down but do not face higher costs if rates rise. Under adjustable-rate mortgages (ARMs), which made up about 28% of mortgages in January, borrowers usually have lower initial rates but face the risk of higher payments if rates in the broader economy rise.

While borrowers can refinance fixed-rate mortgages, Greenspan said homeowners were paying as much as 0.5 to 1.2 percentage points for that right and the protection against a potential rate rise, which could increase annual after-tax payments by several thousand dollars.

He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said.

Joseph McKenzie, deputy chief economist at the Federal Housing Finance Board, says buyers like the stability of fixed-rate mortgages, but there is increasing flexibility in products. "There are lots of innovative programs, especially targeting low-income and first-time buyers," he says.

The Mortgage Bankers Association said the average rate for a 30-year fixed mortgage in the week ended Feb. 13 was 5.46%, compared with 3.27% for a one-year ARM. Mark Zandi of Economy.com says that although Greenspan is technically correct, for some borrowers, including those with high debt, fixed-rate mortgages may be a better bet.





My favorite quotes from the above:

"Overall, the household sector seems to be in good shape," Greenspan said.


"There are lots of innovative programs, especially targeting low-income and first-time buyers," {Joseph McKenzie, deputy chief economist at the Federal Housing Finance Board}

 

[SHELLY]

Greenspan loves to toy with the American people's need for greed.

"This vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent... But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums."

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[Bob]

Greenspan, for all of his sins, did not directly advocate subprime lending. 5/1s taken around 4 percent spring '04 are still looking good.

 

[SHELLY]

Greenspan, for all of his sins, did not directly advocate subprime lending. 5/1s taken around 4 percent spring '04 are still looking good.

Not so if they've gone to "HELOC in a handbasket" on the way up to get that spankin' new SUV, plasma and Disney Cruise.


.

 

[slandmarks]

GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005
Thu Sept 13 2007 12:30:11 ET

Former Federal Reserve Chairman Alan Greenspan admits he "didn't really get it" that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network.

Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he tells Stahl. "I really didn't get it until very late in 2005 and 2006."

Even though one of the Federal Reserve governors raised a red flag on those lending practices, Greenspan says there was little he could do. "Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," says Greenspan.

Several of Greenspan's former Federal Reserve governors have since said that Greenspan's policy of lowering interest rates for three consecutive years early in the decade was wrong because it opened the door for the subprime lenders. They think he kept rates too low for too long. "They are mistaken," Greenspan tells Stahl. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he says.

Some believe today's market slide -- U.S. stocks have lost significant ground over the past few months -- could have been slowed had the current Federal Reserve Chairman Ben Bernanke lowered interest rates like Greenspan did early in the decade. Would he act as dramatically and quickly now as he did then if he were the current chairman as some believe? "I'm not sure that's true," says Greenspan. "We were dealing in an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that anymore... I'm not certain I would have done anything different [if he was the chairman today]," he tells Stahl. "I think [Bernanke] is doing an excellent job."

 

[Bob]

Not so if they've gone to "HELOC in a handbasket" on the way up to get that spankin' new SUV, plasma and Disney Cruise.


.

Who mentioned HELOCs? HELOCs will be going down if Ben comes down from his ivory tower.

 

[SHELLY]

Who mentioned HELOCs? HELOCs will be going down if Ben comes down from his ivory tower.

HELOCs are a BIG piece of the puzzle. People were using their homes like ATMs--"harvesting" their equity to buy toys, vacations and preconstruction condos in Florida.

If Ben cuts the interest rates, any "savings" will be needed to purchase goods--that will be subjected to increased inflation (food & fuel)--that the Fed says doesn't count.

.

 

[Mango]

Not so if they've gone to "HELOC in a handbasket" on the way up to get that spankin' new SUV, plasma and Disney Cruise.


.

Are you talking about prime HELOCs or subprime?

 

[Bob]

HELOCs are a BIG piece of the puzzle. People were using their homes like ATMs--"harvesting" their equity to buy toys, vacations and preconstruction condos in Florida.

If Ben cuts the interest rates, any "savings" will be needed to purchase goods--that will be subjected to increased inflation (food & fuel)--that the Fed says doesn't count.

.

Oil hit 79.80 a barrel today. Nothing Ben does controls the price of oil. Oil drives food prices. The last time we had a Fed inflation fighter, the Prime went to 20, and everyone went to the unemployment line. OPEC has long outlasted Volcker.http://www.bloomberg.com/apps/news?pid=20601109&sid=aWSBqmhwbCFw&refer=home