Greenspan: Household Balance Sheets Generally in 'good Shape'

[rodbarnett]

WASHINGTON (AP) - The balance sheets of American households are generally in "good shape" as extra cash from a huge wave of home mortgage refinancing and decades-low interest rates helped consumers better manage their debt, Federal Reserve Chairman Alan Greenspan said Monday.
The financial health of consumers is important to the economy, which in the second half of last year finally cast off its lethargy and has been growing at a healthy pace. Consumer spending accounts for roughly two-thirds of all economic activity in the United States.

Greenspan, in a speech to a credit union conference meeting here, pointed out that U.S. households own more than $14 trillion in real estate assets - almost twice the amount they own in mutual funds and directly hold in stocks.

Home mortgage refinancings and a solid rise in home values helped to bolster consumer spending during economic hard times as well as during the recovery, Greenspan said.

http://ap.tbo.com/ap/breaking/MGASIY0N0RD.html

comment : has he heard of the real estate bubble??

[mac2]

1. What planet is he from?

There are record bankruptcies and debt.

[joeunderdog]

15. Consumer Debt is at the highest point since the Great Depression

#1 cause of the Depression: Overextension of Debt.

Everyone re-fi'ed into their mortgage and lived a little more lie. Now that interest won't allow people to re-up, the rubber will hit the road.

I'm going to buy on the fire sale next year. Greenie will keep interest low until as long as Shrub pays his check. He's just trying to stay on the payroll until the election.

[htuttle]

2. Picture this scene....

It's 1957, and Ozzie (the 1957 one, not the 2001 one) comes home and tells Harriet that he's mortgaged the house, and invested the money on a sure thing in the stock market. Hilarity ensuses as they try to find a way to avoid losing the house.

Actually, when I describe it that way, it sounds more like something Lucy would do -- certainly not Ozzie!

Either way, this sort of thing would have been completely unbelievable until the last 10-15 years. It would have been considered so ludicrous an idea to mortgage your house and throw the money at a stock (or worse yet -- just spend it), that it would have been considered good fodder for a zany sitcom plot.

Today, the same behavior passes for 'good financial practices' by our Fed Reserve Chairman.

[Tracer]

7. Ludicrous, htuttle??!!!

Well, you should have been a fly on the wall in my house in early 2001, when my "financial advisor" from Paine Webber suggested that I take out a home equity loan of half the value of my home ($200,000) and invest it in the stock market.

I was stunned into silence by the blatant riskiness and stupidity of such a suggestion. Needless to say, I DIDN"T follow that jerk's advice.

[Skidmore]

3. Right, and most people I know

are one or two pay checks away from not being able to pay the mortgage if they lose their jobs. As for those wonderful stock holdings, are yours part of a pension plan and kept in a vested account which you couldn't touch now if you needed to?

BTW, Alan, what happens if the housing bubble bursts? It will,you know.

[hatrack]

4. Oh, Alan? "Chapter 11"? "Chapter 7"? Have you heard of "bankruptcy"?

You see, Alan, a couple million Americans ran out of money last year. It's called "bankruptcy".

When you can't pay all the people you owe money to, you fill out some forms and then you go see a nice man in a black robe. He'll tell some of the people you owe money to to go away. He'll say that you are officially "bankrupt".

Then, for some years after you see the man in the black robe, you'll find it hard to rent or buy property, find a job, buy a car, and other little things like that.

Anyway, this has been happening a LOT recently, Alan. Do you read the papers?

[lucky777]

5. Remember when Sanders excoriated Greenspan?

Published on Wednesday, July 16, 2003 by CommonDreams.org

Exchange between Congressman Bernie Sanders (I-VT) and FED Chairman Alan Greenspan in yesterday's hearing in the Financial Services Committee.

SANDERS: Mr. Greenspan, I have long been concerned that you are way out of touch with the needs of the middle class and working families of our country, that you see your major function in your position as the need to represent the wealthy and large corporations.

And I must tell you that your testimony today only confirms all of my suspicions, and I urge you -- and I mean this seriously, because you're an honest person, I think you just don't know what's going on in the real world -- and I would urge you come with me to Vermont, meet real people. The country club and the cocktail parties are not real America. The millionaires and billionaires are the exception to the rule.

You talk about an improving economy while we have lost 3 million private sector jobs in the last two years, long-term unemployment is more than tripled, unemployment is higher than it's been since 1994.

We have a $4 trillion national debt, 1.4 million Americans have lost their health insurance, millions of seniors can't afford prescription drugs, middle-class families can't send their kids to college because they don't have the money to do that, bankruptcy cases have increased by a record-breaking 23 percent, business investment is at its lowest level in more than 50 years, CEOs make more than 500 times of what their workers make, the middle class is shrinking, we have the greatest gap between the rich and the poor of any industrialized nation, and this is an economy that is improving.

I'd hate to see what would happen if our economy was sinking.

Now, today you may not have known this -- I suspect that you don't -- but you have insulted tens of millions of American workers.

You have defended over the years, among other things, the abolition of the minimum wage -- one of your policies -- and giving huge tax breaks to billionaires.

But today you have reached a new low, I think, by suggesting that manufacturing in America doesn't matter. It doesn't matter where the product is produced. We've lost 2 million manufacturing jobs in the last two years alone; 10 percent of our work force. Wal-Mart has replaced General Motors as the major employer in America, paying people starvation wages rather than living wages, and all of that does not matter to you -- doesn't matter.

If it's produced in China where workers are making 30 cents an hour, or produced in Vermont where workers can make 20 bucks an hour, it doesn't matter. You have told the American people that you support a trade policy which is selling them out, only working for the CEOs who can take our plants to China, Mexico and India.

You insulted Mr. Castle. Mr. Castle, a few moments ago -- a good Republican -- told you that we're seeing not only the decline of manufacturing jobs, but white-collar information technology jobs.

Forrester Research says that over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to India, Russia, China and the Philippines.

Does any of this matter to you? Do you give one whiff of concern for the middle class and working families of this country? That's my question.

http://www.commondreams.org/views03/0716-13.htm

[ignatius]

6. He is also on record as saying that outsourcing jobs is good for

us but that in order to stop outsourcing Americans need more education.

Wow, that's a head scratcher if I ever heard one.

Not to mention, the computer, architect, engineering and accounting jobs are the biggest wave(bye, bye)of jobs to leave now since most of the manufacturing ones are long gone.

Now tell the parents who scrimped and saved to send those computer whizes, accountants, and engineers to school that they need more education.

Greenspan is too old and senile to do anything but prostitute himself for his corporate keepers.

[pw]

8. Because more borrowing is good for you

That cash from refinancing is all money that homeowners will have to pay back later, maybe two or three times over. And if they refinanced with variable-rate mortgages and rates go up, splat. Or if there's a significant drop in home prices (it's happened time and again) so that they owe much more than the house is worth, splat.

Greenspan should (and probably does) know better.

[Mountainman]

9. When you borrow on the mortgage you exchange debt for debt

And you extend the time to pay it off so you are going to pay more interest. Usually people then go back to using the credit cards and the debt picture gets worse since they no longer have equity.

That makes the balance sheet heavy with debt and no assets. Most people who own a home have a mortgage. With a second mortgage and first mortgage, any thing like a medical crisis or lost job puts them into bankruptcy.



When you refinance you extend the length of your mortgage and even though you pay less in payments, you could end up paying more in interest when you combine what you have already paid and what you will pay. Also you are behind the 8 ball when you refinance because it takes a few years before you are really saving money do to the cost to refinance.

Also if you rent and you owe more on your car then it is worth, you probably have more debt than assets, not a good balance sheet.

Greenspan no longer speaks for the whole country. He has gone over to the dark side. He belongs to Edsward's two Americas. The one for the wealthy.

[htuttle]

10. There used to be a phrase describing the advice you just gave

It was: "Common Sense."

However, nowdays I'm sure the financial media would refer to it as a 'Conspiracy Theory'.

[ramapo]

11. Refi with cash out

Many people refi for more than the current mortgage, taking the cash to remodel, take a vacation, etc.

So total debt increases though the cost of servicing the debt may stay the same. Doesn't really help the balance sheet.

[hatrack]

12. "Home Equity Loan" - doncha just LOVE that phrase?

Once upon a time, they used to call them what they were - second mortgages. I always assumed that one mortgage was enough for most people.

[BiggJawn]

13. Does Alan want to be the next "Ned" for Ditech-Dot-Com?

"You're in good shape. You're in hock to your eyeballs, but you're paying less for it than you were...Oh, refinance your home and pay-off those hgigh-interest credit cards now with a Home Equity loan from Ditech-Dot-Com...."

Stupid furkin' out-of-touch old man. I guess Alzheimers is now setting in.

Hey, Greenspan, you old asshole! I don't HAVE any Real Estate holdings *OR* Mutual Funds. I live paycheck-to-fucking-paycheck.

"Home mortgage refinancings and a solid rise in home values helped to bolster consumer spending during economic hard times as well as during the recovery, Greenspan said."

In other words, refinance your debt at a lower rate and take the money you saved on interest and go out and BLOW it...

Shit, even a financial Luddite like ME knows that's a recipe for disaster....Bad enough I owe 14 kilobucks on a $10,000 truck...

[ProfessorGAC]

14. The Debt Load Remains Unchanged

But, the interest reduction puts the cash into a different use. So, the velocity of money remains unchanged and is put on a different path.

And this is going to help the economy, how? Al, you're not only out of touch with average americans, you're knowledge of economics would not fill a thimble.
The Professor

[Yavin4]

16. What's Really Sick About This Is...

Greenspan has encouraged the American people to liquidate their primary appreciating asset, their homes, in order to prop up the economy, knowing full well that the economy is not producing, and will not produce, enough high-paying jobs to enable these same people to put that equity back into their house. Even if they're employed, their incomes will not rise due to the high numbers of unemployed people. On top of that, he's bragging about how great it is that more and more Americans are in deeper and deeper debt.

Historians will remember Greenspan as the architect of the Second Great Depression.

[llmart]

17. OK, so I'm in a bad mood today

but what a fucking idiot Greenspan is! I'm glad I don't listen to these assholes. My husband and I have no debt. We own our house free and clear. Take that you creep!

[Sgt. Peppers]

18. Which means, more money for banks, more debt for citizens

Just the way they want it, worker drones for the rich.

[ignatius]

19. You are so right. I work with a 54 year old man

who refinanced for 30 years. 30 YEARS!! He will be 84 when his mortgage is paid. I am sure he is thinking he will resell in 8-10 years at a profit and will have lowered his monthly payment.

Problem is, if we really are at the onset of a real estate bubble, what if the value of homes actually declines say 15-25%.

Suddenly that $250M home is worth 200 and most of your payment over the first 10 years is interest and does little to paydown principal.

Others have taken 2nd mortgages to buy autos, take vacas and fix their homes. The same will happen to them if we are in a real estate bubble.

As my grandpa always said, you can't borrow your way out of debt.