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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (246519)	5/3/2010 3:34:09 PM
From: Les H	Respond to of 306849

Greenspan Wanted Housing-Bubble Dissent Kept Secret As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves. "We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting. ... Even Tim Geithner, then president of the New York Fed, raised concerns. "[T]he issue has been raised by [Federal Open Market Committee] Vice Chairman Geithner and others that our current policy stance may contribute to potential financial imbalances down the road," then-Vice Chairman Ben Bernanke said, according to the transcript, before dismissing such concerns. ("Imbalance," of course, is a gentle term to describe what the housing crash ultimately wrought.) Three months later, participants at the June meeting were still concerned. Stephen Oliner, the Fed's associate research director, showed the committee a chart of the growing disparity between home and rent prices, the most obvious indication of a housing bubble. Roger Ferguson, a Fed vice chairman, asked about a footnote in the chart that said the graph had been adjusted to reflect biases in the trends, according to the transcript. Oliner described the adjustments as "technical." "Had we not adjusted for them, the rent-to-price ratio would have been much lower at the end point. So it would have looked more alarming," he said. Oliner also flipped the housing line upside down so that it's not shooting off into the sky and is instead descending. "I don't want to leave the impression that we think there's a huge housing bubble. We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there's a part of the increase that is hard to explain," said Oliner. Jeff Lacker, president of the Richmond Federal Reserve Bank, was also curious about the chart. "Just to follow up on what Roger was asking about the panel in chart three on housing valuations. In that panel the relative movement of the two measures is somewhat key to at least the intuitive persuasiveness of the argument that housing might be overvalued," said Lacker. A laugh was then had by Greenspan and the other committee members about the confusing chart. "You can't trust them to do it right!" Greenspan cracked, according to the transcript. No reference to the chart appears in the June minutes. huffingtonpost.com