by Calculated Risk on 10/03/2007 08:45:00 PM

From Reuters: Congress calls for "mortgage czar"

Lawmakers called on Wednesday for a 'mortgage czar' to help cope with an expected wave of foreclosures from the U.S. housing slump but Alan Greenspan said the credit crunch was past the worst.

"We are beginning to see the frenzy calm down," the former chairman of the Federal Reserve told a conference in Lisbon. "Unless we get secondary effects the worst is over."

Whoa! Hold it right there. Whenever Greenspan says the 'worst is over', watch out! Here is a quote from October 9, 2006 (almost exactly one year ago) via Bloomberg: Greenspan Says `Worst' May Be Past in U.S. Housing

Former Federal Reserve Chairman Alan Greenspan said the ``worst may well be over'' for the U.S. housing industry that's suffering its worst downturn in more than a decade.

Tanta for Mortgage Czar!

by Calculated Risk on 9/20/2007 09:55:00 PM

Floyd Norris writes at the NY Times: Inside the Mind of the Fed

Six weeks ago, the Federal Reserve thought the American economy would easily weather problems in the credit market. One week ago, the Bank of England warned against the risks of bailing out those who had made risky loans.

This was a week to say “never mind.”

Norris notes that the Fed and the BoE changed course, but ...

By yesterday ... the markets were moving in ways that cannot have made the Fed happy. The dollar fell — an expected result from cutting short-term interest rates — but long-term rates rose, and so did mortgage rates.

“Alan Greenspan’s conundrum is becoming Ben Bernanke’s calamity,” said Robert Barbera, the chief economist of ITG, recalling that when the Fed raised short-term rates under Mr. Greenspan, long-term rates did not follow. Now the opposite is happening, a fact that will make it that much harder to stimulate the economy.

This was my concern when I outlined a possible vicious cycle that could occur as the Fed cut rates: Watch Long Rates.

Norris goes on to highlight two recent Fed papers that we've discussed before:

Those wanting to understand the Fed’s reversal can profit from reading two papers by Fed officials, released this summer as the credit squeeze was worsening.

In total, they constitute an admission that the Fed was surprised by the housing and borrowing boom on the upside, and now fears it will be surprised on the downside.

emphasis added

by Calculated Risk on 9/17/2007 01:53:00 AM

Here are the videos:

Greenspan on the Housing Crisis

Greenspan on Past & Future

NOTE: From the segment: "[Greenspan] got so close to Clinton and his economic team, that he began visiting the White House as often as once a month, something his predecessors had not done."

But 60 minutes didn't note that Greenspan spent far more time with Bush. (source)

In the 1996-2000 period it was apparently necessary for the chairman to visit the White House about 12 times per year, or once per month. For no apparent reason, Mr. Greenspan's visits to the White House tripled from just 12 in 2000 to 37 in 2001, when Bush took office.

Starting in January 2001 ... [Greenspan] visited the White House at least three times per month, with the only slowdown in June and July of that year.

What were previously monthly meetings continued to skyrocket to over one per week in both 2002 (55 meetings) and 2003 (68 meetings).

These White House meetings since 2001 were with officials at the highest level, something Mr. Greenspan did not do in 2000 or apparently since 1996 based on his monthly meetings there. For example, in 2003 he met with the President once, Vice President Cheney seven times, Condoleezza Rice six times, and Chief of Staff Andy Card three times. In March 2003 he had 14 White House meetings, and in July 2003 he met with six members of the Cabinet, including Colin Powell.

Greenspan on Rising Inflation

Greenspan on Mortgage Meltdown

Greenspan on Iraq

A few reviews:

From Economist's View: What Did Greenspan Say and When Did He Say It?

Sad Alan’s Lament, by Paul Krugman, Commentary, NY Times (excerpts at Economist's View and Naked Capitalism)

A more favorable view from Greg Ip at the Wall Street Journal: Checking Greenspan’s Book Against Historical Record

by Calculated Risk on 9/16/2007 05:52:00 PM

From the Financial Times: Greenspan alert on US house prices (hat tips Carlomagno houston)

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.

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”.
...
Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.
...
As Fed chairman, Mr Greenspan had talked about “froth” in the housing sector, but never said there was a bubble in the market as a whole. His successor Ben Bernanke has also avoided the word “bubble”.

But Mr Greenspan told the FT that froth “was a euphemism for a bubble”.

See the article for Greenspan's comments on SIVs and commercial paper. Greenspan is trying to generate interest for his memoirs, but these comments on the housing bubble and falling house prices are still note worthy.

by Calculated Risk on 9/13/2007 12:51:00 PM

From the WSJ: ‘60 Minutes’: Greenspan Praises Bernanke

Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,” he tells Stahl. “I really didn’t get it until very late in 2005 and 2006.”

And from October 2006:

Former Federal Reserve Chairman Alan Greenspan said the "worst may well be over" for the U.S. housing industry that's suffering its worst downturn in more than a decade.

I hate to pick on Greenspan (too easy of a target), but it was his job to know about the loose lending practices. And no matter how he tries to rewrite history, Greenspan didn't "get it" even in October of 2006.