After 9/11, Greenspan dropped interest rates from 3.5% to 3.0%. In 2003, the Fed again lowered the federal funds rate from 1.25% to 1.00%. This obviously lead to an upsurge in the real estate market. He called the resulting extraction of equity from homes for consumption a 'stabilizing force.' I'd say he set the stage for the real estate bubble.
He suggested in 2004, when the Fed's fund rate was still at a mere 1%, that ARMs are a good thing.
federalreserve.gov
A few months later, in a classic bait and switch, he began a series of raises of the rates that put eventually put them two years later at 5.25%.
atlanticfreepress.com me-low of 1%.
The ARMs which he pushed then re-set at higher rates commencing in 2007. Since many were sub-prime and the borrowers could not re-finance, the credit crisis hit us.
And here we are.
After raising rates and knowing that he imperiled homeowners who had taken out ARMs on a subprime basis, he made this dunderheaded speech in which he supported the toxic garbage.
As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have.
This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers.
federalreserve.gov
He set the stage for consumers to taske on risk they should not have taken, praised subprime and made the low interest rate environment enticing to many. He actively promoted everything that has lead to the crisis.
Now, I know your response will be that the fools who borrowed and the fools who lent are equally at fault and that they should take their medicine. We agree. Unfortunately, the ultimate effect of this has been that the taxpayers, i.e., me and lots of others like me, are now shouldering the losses, not the fools who made the unwise choices. Nope, not the lenders nor the borrowers and not the buyers of Fannie and Freddie debt. Nope, me, you, my prudent neighbors, etc.
There is nothing right or proper about this.
Because of the magnitude of the losses which Greenspan should have anticipated in a market he actively promoted, we are in the greatest financial crisis since the Great Depression.
You really think he needs to be praised for that? |
