UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev | Next
Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Confessions of a Fed Chief Date: 9/15/2007 12:51 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 6
http://www.nytimes.com/2007/09/15/business/15greenspan.html?hp

Greenie's autobiography. I think all autobiographies should be titled "confessions of." At least Greenie's would be more interesting than Paris Hilton's.

The headlines, of course, are the Greenie trashes Bush: well, like duh! Greenspan, for all his faults, is someone who respects intellect.

What is more interesting, from the brief summary, is Greenspan's thinking that lies behind the housing bubble, and I think is a fundamental contradiction in his ideology versus application.

Greenie believes in private property in an ideological way, meaning he thinks that owning property causes people to be more supportive of capitalism and, therefore, less interested in relying on government (or, left unsaid, collective bargaining). So, he wants to promote home ownership.

However, being a free market guy, he wasn't interested in the more socialist approaches to promoting home ownership, which I think are, in fact, far more fiscally responsible. FHA and Freddie and Fannie as government agencies, and various other more focused home ownership programs, not to mention the home mortgage and property tax deductions, all aim to promote home ownership. The basic idea behind loan guarantees for home owners is to take home owners who would be deemed too high risk to afford a mortgage at a low risk rate and help them qualify for the low rate. The point is to find people who are not really high risk if life goes according to plan, but are marginally risky in their current situation. Typically this would be someone whose current earning power makes the mortgage payment too high a % of income, but if income goes up, even if just keeping pace with inflation, after a while the mortgage payment becomes less burdensome. However, if they waited for income to go up, so would housing prices, so they could never afford to buy. But lenders who made these loans, to get guarantees, would have to make careful checks of client finances, and the loans would have to be affordable, even if the buyer had to tighten belt elsewhere to make ends meet.

Greenie's free market approach was basically to make money cheap for lenders and let markets work things out. So, he ignored obvious concerns about predatory and risky lending practices and the obvious point that when teaser rates go up there is no reason to expect a new and cheaper loan to materialize.

I think this a typical Greenspan contradiction; free market in theory but willing to use some regulatory mechanisms to affect markets, which are not necessarily to best regulatory mechanisms, just ones that he can pretend are not regulatory. At least it is a little better than people who decry government spending, unless it goes to well connected private contrators who do a worse job for higher cost.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement