According to the man who has been touted as the greatest central banker we’ve ever had, Alan Greenspan revealed yesterday that he dropped the ball during the birth of the Sub-Prime Mess. According to Greenspan in a 60 Minutes interview, “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 . . . I really didn’t get it until very late in 2005 and 2006.”
This deeply troubles me. I can’t fathom how I and others had an understanding that what was going on was sure to lead to a horrific economic crisis, but Greenspan was out in the dark. I wonder if the central banker simply had too much on his plate, or if his isolation in DC led to his lack of awareness.
I return to the example I’ve given dozens of times of a young policeman in LA who was able to purchase a million dollar home using an option ARM loan. While I was skeptical of things prior to learning of this man’s story, it really did put things into perspective for me. I knew then that we were in for some real troubles ahead. It is all about the math . . . the average policeman can’t afford $4,000+ or $5,000+ a month on a note, and whenever this guy’s mortgage was set to reset, he was going to lose his home. When everyone I knew back in 2003 was talking about how how much money they were going to make in real estate, I knew something was wrong. It just looked too much like the Dot-Com bubble.
This bubble seems to have much larger implications, however . . .
Knowing that Mr. Greenspan failed to recognize the obvious (along with millions of other frenzied investors, home-owners, real estate agents, lenders, etc.) has actually begun to ruin his reputation.
That said, many economists are finally saying that he should have been calling for increased regulation of the mortgage business, and that he left rates too low for too long. It is easy to come out as a Monday morning Quarterback and go after him now, but where were they when all of this was going on? Most of them were busy sowing the spoils we helped to create.
So where are we now?
Many of the same economists are now predicting that we are headed for a recession unlike any we’ve seen since WWII. I’m thinking that they might finally be on point with their predictions.
Thanks for everything Mr. Greenspan (and all others who could have done something about this, but were too busy getting fat off of the booming housing market at the time)!