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Alan Greenspan told business leaders in Tokyo via video conference that cutting excess home inventories in the U.S. is the key to stabilizing the financial system at home and in the rest of the world. And I'm sure he's right. He hasn't given any details about how he thinks it should be done, but he does state what seems to be obvious.
He also doesn't appear to be taking any blame for what we are now facing, even though he was the one in charge while the problems were building. Remember he left the Fed in 2006. He let the banks continue the lending practices that are finally being scrutinized now that the crisis is at hand. As I posted earlier today, the Fed is finally looking at ways of cleaning up this mess.
What is the Fed planning to do? It is reviewing mortgage-related rules and plans to announce new bans on deceptive advertising practices by the end of the year, as well as looking at ways to improve consumer disclosures. Also in the works are new rules related to prepayment penalties, escrow practices for taxes and insurance, stated-income and low-documentation lending and adequate consideration of a borrower's ability to pay. I hope they're also looking at ways banks book derivatives, especially the games they're playing to keep things off the books.
Greenspan should have been on top of this before the mess became the crisis we see today. He was the one in charge while these fires smoldered in the lending world. While I applaud the Fed for finally taking action, I have a hard time giving applause to Greenspan for his way-too-late public pronouncements.
Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to the Federal Reserve."
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Reader Comments (Page 1 of 1)
11-06-2007 @ 3:17PM
Sarrah said...
Like Congress and the White House, the Fed doesn't do its job. For the second time in a decade the Fed has run the economy onto the shoals of recession. All anyone needs is common sense to understand that (1) rollercoastering critical interest rates doesn't solve problems that require regulation - i.e. predatory lenders and speculative market manipulators, and (2) successively higher rate increases means that the resulting higher costs of doing business are passed to consumers. Consumers are also taxpayers and voters. Watch out 2008!
11-07-2007 @ 7:26AM
Suzy said...
I have watched Greenspan's many errors for years now, knowing his responses to the economy were made too soon and in the wrong direction. As soon as you began to see the light, Greenspan would make it out of reach again. It happened so many times. He has always been a thorn in my side as far as his judgement is concerned. He need not point a finger now that he is out of office. He couldn't do the job right when he had it. Where do you think the people who had to foreclose are now?
11-08-2007 @ 4:00PM
Brian said...
The one to blame for the majority of the upcoming foreclosures is the one who buys a house that they can't afford.
How many times have we heard "what matters is how much you can afford your monthly payment to be and how little, if any, a downpayment is required.
This is flawed logic to say the least. This isn't Greenspans fault, the lenders fault or the economy's fault. It is the consumers fault.
Yes, foreclosures will go up because alot of people went with the interest only ARM's so they could afford the monthly payment on a house they couldn't REALLY afford. What these people did was gamble with money they didn't have and many of them will lose. The advantage always goes to the house
But I will guarantee you that those who bought homes within their means, put 10% to 20% down and got a great fixed rate for 15-30 yrs will be fine.
Whether you hate Bush or love Bush, whether you are a Liberal or a conservative it doesn't matter. The unemployment rate is extremely low both for this country and is even more dramatic vs other non-third world countries.
Interest rates for home borrowing (fixed rate 30 yr loans that pay down principal each month) are still extremely low and available for responsible people that pay their bills on time and live within their means.
It is always easier to fall for the sad luck story and place blame on anyone except the person that is really at fault.