Greenspan: I didn't grasp subprime threat

[TexasLawyer]

Source: AP

Greenspan: I didn't grasp subprime threat

Former Federal Reserve Chairman says he didn't see early on
the damage that lending to those with questionable credit could
do to the economy.

September 13 2007: 1:34 PM EDT

WASHINGTON (AP) -- Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.

In an upcoming interview, Greenspan said he was aware of "subprime" lending practices where home buyers got very low initial rates only to see them later jacked up, causing severe payment shock. But he said he didn't initially realize the harm they could do.

"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 said a CBS "60 Minutes" interview to be broadcast Sunday. "I really didn't get it until very late in 2005 and 2006," Greenspan said. An excerpt of the interview was released Thursday.

A meltdown in the subprime mortgage market has rocked Wall Street. Foreclosures and late payments have soared and lenders have gone out of business. Nervous financial institutions tightened credit standards, making it harder for even more creditworthy borrowers to get financing. This has increased chances the economy might slide into a recession this year.



Read more: http://money.cnn.com/2007/09/13/news/economy/greenspan.ap/index.htm?postversion=2007091313

[babylonsister]

1. Damn. Why don't I believe him? nt

[mslawstudent]

9. I believe him

The faith of economists in the market is near religious. Everyone is suppose to make rational choices reflecting optimal risk taking over their entire lifespan. (yes I know that's stupid but that what efficient market theories call for. )

[Warpy]

13. I believe him, too

because he's one of those loony theorists who was completely unable to anticipate any unintended consequences of a theory he was absolutely convinced was going to work.

[redqueen]

24. Economists are not a homogenous entity. There are sane ones

and they've been warning about this for years.

Guess the ones that get airtime from the whore media are the only ones that count, though.

[LiberalFighter]

39. I believe him to be an idiot and a scumbag.

[Whoa_Nelly]

2. I call BULLSHIT! Read this! It was all done with intent!

http://economistsview.typepad.com/economistsview/2007/08/joseph-stiglitz.html

August 09, 2007
Joseph Stiglitz: Greenspan, Bush Errors Finally Come Home to Roost

<snip>
The story goes back to the recession of 2001. With the support of US Federal Reserve Chairman Alan Greenspan, US President George W. Bush pushed through a tax cut designed to benefit the richest Americans but not to lift the economy out of the recession that followed the collapse of the Internet bubble.

Given that mistake, the Fed had little choice if it was to fulfill its mandate to maintain growth and employment: it had to lower interest rates. ... But, given that overinvestment in the 1990s was part of the problem underpinning the recession, lower interest rates did not stimulate much investment.

The economy grew, but mainly because American families were persuaded to take on more debt, refinancing their mortgages and spending some of the proceeds. And, as long as housing prices rose as a result of lower interest rates, Americans could ignore their growing indebtedness.

<snip>
Alan Greenspan egged them to pile on the risk by encouraging these variable-rate mortgages. But did Greenspan really expect interest rates to remain permanently at one percent - a negative real interest rate? Did he not think about what would happen to poor Americans with variable-rate mortgages if interest rates rose, as they almost surely would?

Too many Americans built no cushion into their budgets, and mortgage companies, focusing on the fees generated by new mortgages, did not encourage them to do so.

[riona]

32. I have to agree

I don't recall, I didn't grasp, We couldn't imagine, We relied on ..... Good grief, the poor person elected to clean up this mess

[Dr.Phool]

35. This is the same Greenspan who testified before Congress

About the dangers of a budget surplus.

We see how that's working out.

[melody]

41. A conscious, intentional act n/t

[Ed Crotch]

3. Maybe..

Maybe he meant...The impending and unavoidable subprime crisis won't effect me my cronies one bit so why should I care? I am poised to make millions of dollars off of this!

[Quantess]

25. Welcome to DU!

Cute name, LOL.:hi:

And yes, that's exactly what he meant.

[MannyGoldstein]

4. Why Am I Reminded Of The Film "Being There" ? (nt)

[Virginia Dare]

5. This is a joke, right?

the BRILLIANT economist Alan Greespan failed to see the danger in an explosion of subprime mortgages?...:rofl: :spray:

[jackster]

6. he didn't see the harm it could do...

good god.

another conservative moron who's never once in their life had to worry about how to make it through until the next pay check. Not a clue about how the real world turns while he idles away his time in his ivory tower.

hope you can sleep at night you asshole.

[Gregorian]

7. He advocated ARM loans. And even I was astonished.

And I don't even have a phd in economy.


I think he's pulling our leg.

[TexasLawyer]

33. And he pushed ARMs in 2004

when the realty market was already getting frothy.

A blast from the past:

Posted 2/23/2004 11:39 AM

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.

<snip>

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.

http://www.usatoday.com/money/economy/fed/2004-02-23-greenspan-debt_x.htm

[TexasLawyer]

36. And he must have known in early 2004 that interest rates would be rising sharply

See, e.g., this Paul Krugman article that ran in The New York Times, 4.20.04. I ran out and refinanced my house (from ARM to 5% fixed rate) after I read this.

Prophetic words from Krugman's article:

Just two months ago, Mr. Greenspan went out of his way to emphasize the financial benefits of adjustable-rate, as opposed to fixed-rate, mortgages. Let's hope that not too many families regarded that as useful advice.



http://www.pkarchive.org/column/042004.html

[shain from kane]

8. Economics 101. n/t

[CountAllVotes]

10. what a friggin awhole!

Greenie knew exactly what he was doing. Cut the rates to 1% and get all of the people living on dividends to INVEST in the stock market while people got sucked into taking out those ARMs.

The market is a joke and he knows it!

In the meantime, some people might have been lucky enough to have what money they have saved socked away in long-term CDs. Others were not so lucky.

At present, my solitary brick and mortar savings acct. at a local bank is paying a whopping .06% interest. I keep little in this acct. needless to say.

You did it Greenspan and now you are in CHARGE OF THE WORLD BANK! :scared:

This man needs to RETIRE now and/or go to jail for what he has done to the American economy.

:kick:

[hlthe2b]

15. re: "in charge of World Bank?" News to me...

He was head of Federal Reserve 1987-2006 and now serves on some boards, but I know of no specific management role with World Bank....?

http://www.nndb.com/people/164/000023095/

[CountAllVotes]

22. I remember hearing this very recently

let me do some checking around. Let's hope I am wrong!!!

On edit:

>> Alan Greenspan, the former chairman of the US Federal Reserve Board, has expanded his portfolio of activities by becoming an adviser to Germany's Deutsche Bank, turning down the opportunity to work with Wall Street giants in his home country.

The 81-year-old retired from the US central bank in February last year after 19 years as chairman and formed Greenspan Associates to pick up lucrative work advising clients in the business world.

Mr Greenspan will advise only one client from any industry and his work for Germany's biggest bank in effect rules him out of working for Wall Street investment banks such as Goldman Sachs. He also advises the fund management giant Pimco, which is owned by the German insurer Allianz.

His activities will include participating in events with Deutsche's investment bankers and their clients and taking part in conference calls with the bank's research team.

http://news.independent.co.uk/business/news/article2861780.ece

:kick:

[hlthe2b]

31. at least it is not a World Bank position....

I'm sure the Germans can prosper, regardless.

[displacedtexan]

11. Don't tell me; let me guess: No one could've predicted..."

[Kutjara]

12. Something smells fishy.

I sold my house eighteen months ago and put the cash in relatively safe investments precisely because I could see the writing on the wall. Ridiculously inflated house prices plus easy credit was an obvious recipe for disaster. I'm not trying to blow my own trumpet here; the situation was obvious to anyone who thought about it for more than sixty seconds.

Yet the Prophet Alan, to whom America has entrusted the management of its finances for decades couldn't foresee it? None of his team of PhD economic advisors could foresee it? I'm sorry, I don't buy it.

I think, like everything else, the current regime was hoping it could use easy credit and the false feeling of wealth rapidly inflating house prices give to fool Americans into believing the economy was sound. They were betting on being able to keep the ponzi game going until the next Dem president is in power, and then blame the inevitable collapse on him/her. Just like every other BushCo scheme, however, it's ended in disaster.

[Gregorian]

17. I did the same thing 8 months ago.

But I'm now without a house, which sucks. And my money is in the bank, which has me nervous.

I'd have given anything to have a home, and no money, versus money and no home.

But we're lucky we sold.

[Warpy]

23. That's about when I sold my dad's house in Florida

I counted the "For Sale" signs in the area and lowered the price 10% from the comps. I sold in a week. People thought I was nuts for letting it go for so little, but the bottom has fallen out of the market, the same places that were for sale then are still for sale, and the house is now depreciated another 15% from what I got for it.

Honestly, it didn't take in depth market analysis or extensive web research. It took a 10 minute drive around the neighborhood and the ability to count past 10 without taking off my shoes.

[w8liftinglady]

14. of course not-he was a disciple of Ayn Rand for 20 years

http://www.booksamillion.com/ncom/books?pid=0451147952
Capitalism
The Unknown Ideal
(Paperback)
by Ayn Rand; Nathaniel Branden; Alan Greenspan
The foundations of capitalism are being battered by a flood of altruism, which is the cause of the modern world's collapse. This is the view of Ayn Rand, a view so radically opposed to prevailing attitudes that it constitutes a major philosophic revolution. In this series of essays, she presents her stand on the persecution of big business, the causes of war, the default of conservatism, and the evils of altruism. Here is a challenging new look at modern society by one of the most provocative intellectuals on the American scene. This edition includes two articles by Ayn Rand which did not appear in the hardcover edition: "The Wreckage of the Consensus," which presents the Objectivists views on Vietnam and the draft; and "Requiem for Man," an answer to the Papal encyclical Progresso Populorum.

[happyslug]

47. Had to find Progresso Populorum.the site you quote mentions it.

The Vatican has it on line: It is a report done by Pope Paul VI in 1967 during Vatican II:
http://www.vatican.va/holy_father/paul_vi/encyclicals/documents/hf_p-vi_enc_26031967_populorum_en.html

In the report Pope Paul states the following (I just scanned the report but these are the things that caught my attention and why Ayn Rand opposed this paper for it attacks the excesses of Capitalism):

9. At the same time, social unrest has gradually spread throughout the world. The acute restlessness engulfing the poorer classes in countries that are now being industrialized has spread to other regions where agriculture is the mainstay of the economy. The farmer is painfully aware of his "wretched lot." (9)

Then there are the flagrant inequalities not merely in the enjoyment of possessions, but even more in the exercise of power. In certain regions a privileged minority enjoys the refinements of life, while the rest of the inhabitants, impoverished and disunited, "are deprived of almost all possibility of acting on their own initiative and responsibility, and often subsist in living and working conditions unworthy of the human person." (10) Cultural Conflicts

23. "He who has the goods of this world and sees his brother in need and closes his heart to him, how does the love of God abide in him?" (21) Everyone knows that the Fathers of the Church laid down the duty of the rich toward the poor in no uncertain terms. As St. Ambrose put it: "You are not making a gift of what is yours to the poor man, but you are giving him back what is his. You have been appropriating things that are meant to be for the common use of everyone. The earth belongs to everyone, not to the rich." (22) These words indicate that the right to private property is not absolute and unconditional.

26. However, certain concepts have somehow arisen out of these new conditions and insinuated themselves into the fabric of human society. These concepts present profit as the chief spur to economic progress, free competition as the guiding norm of economics, and private ownership of the means of production as an absolute right, having no limits nor concomitant social obligations.

This unbridled liberalism paves the way for a particular type of tyranny, rightly condemned by Our predecessor Pius XI, for it results in the "international imperialism of money."(26)

Such improper manipulations of economic forces can never be condemned enough; let it be said once again that economics is supposed to be in the service of man. (27)

But if it is true that a type of capitalism, as it is commonly called, has given rise to hardships, unjust practices, and fratricidal conflicts that persist to this day, it would be a mistake to attribute these evils to the rise of industrialization itself, for they really derive from the pernicious economic concepts that grew up along with it. We must in all fairness acknowledge the vital role played by labor systemization and industrial organization in the task of development.

49. We must repeat that the superfluous goods of wealthier nations ought to be placed at the disposal of poorer nations. The rule, by virtue of which in times past those nearest us were to be helped in time of need, applies today to all the needy throughout the world. And the prospering peoples will be the first to benefit from this. Continuing avarice on their part will arouse the judgment of God and the wrath of the poor, with consequences no one can foresee. If prosperous nations continue to be jealous of their own advantage alone, they will jeopardize their highest values, sacrificing the pursuit of excellence to the acquisition of possessions. We might well apply to them the parable of the rich man. His fields yielded an abundant harvest and he did not know where to store it: "But God said to him, 'Fool, this very night your soul will be demanded from you . . .' " (54)

59. The teaching set forth by Our predecessor Leo XIII in Rerum Novarum is still valid today: when two parties are in very unequal positions, their mutual consent alone does not guarantee a fair contract; the rule of free consent remains subservient to the demands of the natural law. (57) In Rerum Novarum this principle was set down with regard to a just wage for the individual worker; but it should be applied with equal force to contracts made between nations: trade relations can no longer be based solely on the principle of free, unchecked competition, for it very often creates an economic dictatorship. Free trade can be called just only when it conforms to the demands of social justice.

[BridgeTheGap]

16. To regulate or not to regulate? THAT is the question.

Republicans want us to believe that government can't do anything right and that business can do everything right.
Are we to believe that you can't trust government but we should trust unregulated business?
Give me a break!

[TexasLawyer]

18. oh, what a pickle we're in!

a good discussion of why Fed rate cut might not help and might actually hurt.

Fed can't stop recession

Even if the central bank starts to cut rates aggressively,
many of the risks for the U.S. economy are beyond its reach.

By Chris Isidore, CNNMoney.com senior writer
September 13 2007: 1:35 PM EDT

NEW YORK (CNNMoney.com) -- Problems in housing, the financial markets and the first job decline in four years have made a Federal Reserve rate cut next week all but certain. But it has also raised talk about a recession -- and whether the Fed is able to prevent one.

While most economists still don't believe the nation will fall into a recession, there is general agreement that the economy now faces a greater risk than there was only a month or two ago.

Problems in the financial credit markets are only part of the risk faced by the U.S. economy.

But many economists also say that the Fed can do little at this point to address many of the factors threatening continued economic growth. Some economists even argue that rate cuts could make matters worse.

<snip>

http://money.cnn.com/2007/09/13/news/economy/recession_risks/index.htm

[CountAllVotes]

20. If the Fed had a brain ........

he would RAISE interest rates to attract more investors to the economy of the USA!

[Quantess]

19. LIAR!

He's kind of dumb sometimes. Dumb like a fox.

[redqueen]

21. LIAR!

I wonder how many sheeple STILL believe anything this tool says.

[Vinca]

26. They might as well hire me to run the Fed - I don't know sh*t either. nt

[Xipe Totec]

27. He thought it would only hurt the little guy

He never imagined it could hurt his friends. :eyes:

[shaniqua6392]

28. He must be telling the truth, right???

Yeah. Sure. He just assisted the Bush Administration in this madness giving out sub prime loans. I can not count how many times Bush said, "Look at all the people who are able to afford homes under my administration". Everything was just coming up roses. I just thought the felt like they would have more time before the whole thing fell apart. I think they were hoping it would wait to implode until after January 2009 so they could blame it on a Democratic majority.

[Javaman]

29. More of the....

"I don't think anyone could have anticipated this!", excuse.

[donkeyotay]

30. He's making the GOP Gambit: "I'm incompetent, not corrupt."

I had NO IDEA I was enriching the Have Mores at your expense. Honest! Trust me!

[TexasLawyer]

34. Another Greenspan "my bad"-- his support of Bush tax cuts

Mr G has also admitted that his support of the Bush tax cuts was not quite the right thing to do.

03/17/2005 03:50 AM

Greenspan 'Mistake' on Tax Cuts Helps Turn Budget by $9.6 Trillion

Alan Greenspan, chairman of the US federal reserve, speaking at the Senate select committee on ageing has admitted under questioning by Hillary Clinton that supporting President Bush's tax cuts in 2001 was a mistake.

At the end of the Clinton administration the budget surplus was projected to be $5.6 trillion by 2011, if Bush's tax cuts are made permanent this figure is expected to turn into a $4 trillion deficit.

Greenspan admitted: "if confronted with the same evidence we had back then, I would recommend exactly what I recommended then. Turns out we were all wrong".

"Not all of us" replied Senator Clinton.

Source: www.smh.com.au

http://www.shortnews.com/start.cfm?id=46732

[TexasLawyer]

37. 60 Minutes schedule

CBS-- check local listings.

Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to 60 Minutes correspondent Lesley Stahl in his first major interview this Sunday, Sep. 13, at 7 p.m. ET/PT.

[Dark]

38. The fuck you didn't. n/t

[Odin2005]

40. Hey, Greenshit, don'y you think that's telling you something?

Like, maybe, your right-wing Monetarist "Chicago School" claptrap is BS?

[yardwork]

42. How much did he get paid?

Sheesh. "Nobody could have imagined that..."

What complete and utter frauds and greedy liars these people are.

[Spazito]

43. Gosh, why is this familiar??....

Now I remember, Condi, too, said something similar re the PDB, etc.

Man, they really should get some new phrasing for their phony denials, if nothing else it would show some creativity.

Greenspan is responsible for this and he knows it but, like all other bushites, refuses to take responsibility.

[donkeyotay]

44. Don't forget Mr. Greenspan's accomplishments on Social Security

He was part of St. Reagan's brain trust when they raised the payroll tax to build a surplus so that the baby boomers would be covered. Seems they stole that as well, but no one could have anticipated that either.

[Zorra]

45. He's another lying republican neocon globalist. But we already knew

that.

[Le Taz Hot]

46. Wasn't Greenspand an

Ayn Rand disciple (literally studying under her) and isn't her crap STILL being used the quintessential bible for economics? Why is that? Does anyone know?