US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market.
Now he tells us! Now that, after encouraging the bubble, blowing it out of proportion, and claiming that it was not possible to tell if there was a bubble, said bubble is blowing in our faces as many observers have predicted for a number of years now, he claims that it was obvious all along.
What a lying piece of shit.
Exclusive to DD!
In an interview ahead of the release on Monday of his widely-anticipated memoirs, the former chairman of the Federal Reserve said the decline in house prices “is going to be larger than most people expect”.
That’s only because most people chose to believe his lies over the warnings of those that said that incredibly cheap debt and the “Greenspan put” (the idea, turned reality in 1987, 1997, 1998, 2001, that the Fed would rescue the markets by lowering interest rates should any big crisis strike) were a recipe for worsening bubbles, and of those that suggested that maybe central banks should worry about asset price inflation (like European Central Bank chairman Jean-Claude Trichet, who was widely mocked then for his quaint ideas). I’ve been writing diaries for close to 3 years on that topic, and the existence of a bubble has been blindingly obvious to me all along.
He said the price of risk had fallen to unsustainably low levels beforehand, with investors addicted to asset-backed securities that offered some additional yield over Treasury bonds as if they were “cocaine”. Mr Greenspan said this demand induced the big increase in the origination of subprime mortgages by mortgage brokers.
“Cocaine”, heh? Strong words. Yeah, people started takng too much risk because they made no money whatsoever on normal transactions precisely because the Greenspan Fed kept rates low and brought the remuneration for safe assets incredibly low. Borrowing money was cheap, but investing it required taking increasing risks; but risky investing was done precisely because the money to do so was made available cheaply all along… Thus a bubble of over-investing, increasingly focused on silly (but initially profitable) investments.
Mr Greenspan said the off-balance sheet investment vehicles that issued much of the asset-backed commercial paper represented a “savings and loans disaster waiting to happen” because of the mismatch between their assets and liabilities.
Indeed. And he did what about it? Nothing? Yep. Can he be blamed for that? Yep.
Of course, we should note carefully what he says, because it is yet another indictment of the Bush administration, but we should never forget that he was completely part of their economic strategy, and never protested against it despite his wide powers to do so. He is indicting himself today. Bush cannot be blamed for it all. He was helped, by accomplices, sycophants and by those that could not be bothered. Whether they were clueless, or cowards, or profiteers who thought they could get away with it, they are responsible.
And “Bubbles” Greenspan is more responsible than most.