The Truth About Alan Greenspan and the Real Estate

Alan Greenspan continues to warn about problems in the real estate markets and other parts of the economy. But with every warning, Greenspan paints a picture that suggests the problems have nothing to do with his irresponsible money management during his reign at the Fed. In truth, if one man can be blamed for today's problems in the real estate markets, it is Greenspan. He flooded the home mortgage market with trillions of dollars during his watch.

Here are the cold hard facts:

When Greenspan took over at the Fed in 1987, total outstanding US home
mortgages stood at only $1.82 trillion.

By 1999, total outstanding mortgages in the US stood at $4.45 trillion.

By 2004, US home mortgages stood at $7.56 trillion.

In 2005, Greenspan's final full year as Fed chairman, home mortgage debt
outstanding amounted to $9.1 trillion.

Here is some of the jawboning Greenspan conducted while he was Fed
Chairman.

In 2003, he called the refinancing of housing, "support" for the economy:

The outsized dollar volume of these refinancings--by our estimates, $1-3/4 trillion net of cash-outs--was an all-time record and represented almost
one-third of the value of all regular home mortgages outstanding at the
beginning of last year...An even greater support to the economy than cash-
outs last year was the extraction of home equity associated with a record
6.4 million existing home sales, including condos, at record prices.

And he basically advised not to worry about a housing bubble:

...any bubbles that might emerge would tend to be local, not national, in scope... In evaluating the possible prevalence of housing price bubbles, it is
important to keep in mind that home prices tend to consistently rise relative
to the general price level in this country...A sharp decline, the consequences of a bursting bubble, however, seems most unlikely...Here is Greenspan spinning things now, as though he had nothing to do with the problem.

On March 15 of this year, he said:

You can't take 10 percent out of mortgage originations without some
impact...

In October 2006, he blamed the entire thing on the Berlin Wall coming down:

I dont think that the boom came from a 1 per cent Fed funds rate or from
the Fed’s easing. It came from the collapse of the Berlin Wall.

The Berlin Wall??

In 2003, while discussing refinancings, he came closer to the truth:

Owing largely to the lowest mortgage interest rates in more than three
decades and rising home prices, close to 10 million regular home mortgages were refinanced.

There are massive distortions in the economy right now, caused by
Greenspan's low interest rate monetary policies when he ruled the Fed.
Many different sectors could implode: further problems in real estate, the
carry trade, the hedge fund industry, etc. Greenspan knows this. He sees
that the economic tsunami wave is about to hit. His warnings should not be
taken lightly. He created the mess ahead. He knows it and understands how
bad things can get.