|
 March 16, 2007
The Stylings of Sir Alan
As if we required any further evidence that former Fed Chairman Greenspan recklessly embraced asset price inflation when conducting monetary policy, yesterday the Maestro obliged:
“If we somehow could wave a wand and home prices would go up 10 percent, the subprime mortgage problem would disappear”
But Alan, wouldn’t a further unprecedented escalation in U.S. home prices simply exasperate the subprime problem by allowing lax lending standards and dangerous borrowing choices to continue? Oh, I almost forgot, in Greenspan-land a perpetual increase in asset prices solves all.
“What we're dealing with [referring to the subprime meltdown] is something that's more an issue of home prices than it is of mortgage credit quality…If home prices go down from here, I think we'll have problems.”
Apparently Greenspan believes that sound lending policies and/or prudent borrowing practices can not be determined with any degree of certainty before the contract is signed. Rather, it all depends on what asset prices do tomorrow...
While it may be unfair to grab a couple of handpicked quotes and attack Sir Alan, it is nonetheless reasonable to conclude that Greenspan is showing no signs of apologizing for his bubble blowing tenure at the Fed. In other words, although U.S. consumers are not saving a dime and are by many measures more leveraged than ever before, Greenspan remains resolute in his belief that everything is fine so long as paper net worth levels continue to increase.
As for the theory that after nearly two decades of incessantly waving his magic wand and failing to adopt a single regulatory safeguard that Greenspan helped encourage the potentially menacing investing/borrowing habits we see today, relax and remember:
“When [asset] prices go up, the [debt] problems will disappear”
 |
Home price slump led to subprime crisis, Greenspan says PBP
As Greenspan Bids Adieu, Say Hello to Uncertainty FallStreet
|
|
