Greenspan says Fed didn't cause the housing bubble: report

[Javaman]

http://news.yahoo.com/s/nm/20090311/ts_nm/us_housingbubble_greenspan

Play Video Economy Video:Geithner: Toxic asset plan almost done AP Play Video Economy Video:How To Prepare for Layoffs CBS4 Denver Related Quotes Symbol Price Change
^DJI 6,926.49 +379.44
^GSPC 719.60 0.00
^IXIC 1,358.28 0.00

AFP/Getty Images/File – Former Federal Reserve Chairman Alan Greenspan in Washington, DC. Greenspan has warned against misreading … (Reuters) – Former U.S. Federal Reserve Chairman Alan Greenspan said lower rates on long-term, fixed-rate mortgages and not the Federal Reserve's policies are to blame for the U.S. housing bubble.

"Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate," Greenspan wrote in the Wall Street Journal.

Calling his explanation of the causes far more credible than blaming 'easy money' policies, Greenspan wrote that "it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate," adding that U.S. mortgage rates' linkage to short-term rates had been close for decades.

The Federal Reserve became aware of the disconnect between monetary policy and mortgage rates when the latter failed to respond as expected to the Fed tightening in mid-2004, said Greenspan, who was the Federal Reserve Chairman from 1987 to 2006.

[n2doc]

1. And I thought this was an article from the Onion

Silly me...