Greenspan: Financial Crisis Likely Worst Since WWII

Alan Greenspan writes in the Financial Times:

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes - those belonging to builders and investors - have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.

The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market's rapid contraction have involuntarily added an additional 200,000 newly built homes to the "empty-house-for-sale" market.

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Comments

[StephenBarry]

The invasion of Iraq was a "success" because Iraq is now ununified, as it was under Saddam, and a weak state is in place that can not counter US control of its oil. That's why they killed off Sadam so quickly. Equally cyncial, the sub-prime debacle was a targeted asset grab plain and simple. They targeted these "unsuitable" poor families, reaped origination fees and interest, etc. and when they defaulted took the houses. Bailing out the banks instead of helping these people is akin to the tail wagging the dog. Next step (in progress) debase the currency and inflate thus stealing what is left. There has never been a state to my knowledge "of the people, by the people, for the people" that has so systematically attacked its middle and lower classes in such a ruthless fashion, not to mention the 600,000 Iraqis they killed. The right hates everyone. When they are not decimating indigenous populations or enslaving and suppressing people of colour, they are smashing unions, off-shoring jobs, plundering pension assets, etc etc etc. America may be the least people friendly state on earth. What monumental hypocrocy. I want Obama to win, but I fear for him. Remember what happened to the last handsome, intelligent, articulate, photogenic black man on the national stage. That speech he gave about race yesterday proved he is a high caliber individual and Americans don't like 'too bright' people. Just won't do. Economic and political enslavement is the new American way.

[vandegrasse]

This country is in a miserable, horrible mess. How did this dreadful mess com to pass, that a once great nation has become a has been, a nothing, a never will be again on account of Republican­/corporate greed. God, I'm angry!

[realpolitic]

Unemployment has actually gone up in the Bush years. His job creation numbers are very small and hardly cover the increase in population due to immigration. The unemployment rate appears smaller because so many have opted out of the labor force entirely. Thus, they are no longer looking for a job and are no longer counted as unemployed. This definition includes only those actively looking for work. Who knows what has happened to these people? They are an unstudied group. Perhaps they may live off of a spouse's income, return to school, or just become homeless. Labor force participation rates, indicating the total number of people employed in our economy, are less now than under Clinton, while our population has grown. Many people have simply given up.

[chappelforpres]

Greenspan would seem to bear a great deal of responsibility for the mess we now find ourselves in. Investment banking and insider malfeasance reared its ugly head during the dotcom bubble, demonstrating that capitalism was vicious, cynical and corrupt, left to its own devices.

In response to the impending post crash crisis, the Fed began stimulating , but failed to reverse policy despite an unsustainable and troubling rise in real estate prices and poor lending practices. The consumer driven, debt ridden economy fostered an illusion of prosperity. Everyone was encouraged to borrow investment capital. This pipe-dream allowed Bush and his supply-side trolls to cut taxes for the wealthy and borrow like drunken sailors. With little real opposition (after all, who frets when they're well fed), his bungled foreign policy has totally destabilized the energy markets, reeked havoc on the dollar, and has ignited inflation. This compounds the overvalued, over leveraged housing crisis. Greenspan, willingly or unwillingly, was a classic enabler of the inevitable blow-up.

[YouThinkAndTalk]

Oh, my God. Greenspan woke up! That was a very long nap. Mr. Greenspan.

I bet he knew all along that this is what was going to happen, but he kept conveniently silent, whispering something about exuberance.

[dadw5boys]

Alan Greenspan is talking too date.

In June another 1.9 million Investor Held homeloans will be going into default. Alan might add to his line about how tyerrible it really is.

[WIpatriot]

I have to call shenanigans on Sir Alan of Greenspan.

Response to Alan Greenspan in Financial Times 3-17-08

You open with the narrow conclusion that this crisis will end when home prices stabilize. You pin the economic situation solely on rising home prices, which, by the way, was driven by the beloved financial industry. More likely, the solution that the Fed has chosen will bring a deep inflation as a result, which is also part of this crisis as its control response to the issue, is something you’ve chosen to disregard. And, so is the greed on the part of the financial industry that spurred the “exuberant” home pricing.

In your usual “fed-speak” you state that the point of home price stabilization will come at some unknowable point in the future when the “rate of inventory” peaks, yet before all the houses are sold. That is absolutely brilliant gobbledygook!

You are correct that the “financial risk-valuation system” will be hit hard, as it should be. To say that shareholders are shocked is a joke. The “financial self-regulation” was the cause of this and SHOULD be a casualty of this crisis, not something to be left untouched. The financial market has proved itself of being able to regulate itself. Have we forgotten the lesson of the S&L scandal? Indeed, we have, and in no part, thanks to you.

Your “mathematically elegant economic forecasting models” have gone wrong, not because of flawed input, but simply because financial fraud has been taking place and while knowing that is was occurring, you failed to do anything about it. It is not risk management that is the core of the issue, It is fraud that was perpetuated and ‘profitized’ throughout the financial market. Again, you keep referring to the fraud that took place as “risk-management” knowing full well it is not that at all. Your analysis of the faulty modelling based on this produces a flawed hypothesis.

Concluding that reforms should not interfere with your faulty free-market platform, which everyone knows is pandering to corporatism, is thusly flawed. The markets do not belong to the financial institutions, they belong to the people being served. Severe regulation of the financial industry is in fact what is required. The Glass-Steagall Act must be reinstituted.

[robeson]

Alan, you stole so much money from the U.S. Treasury under the Milton Friedman colors, how about a victory dance in the end zone.

[HatingTheGame]

"Greenspan: Financial Crisis Likely Worst Since WWII"

Since Alan has a tendency to speak in tongues, and convoluted messages that often need translation, let me translate this one:

"My 20 years of service just ripped you Americans a new one --- now, watch yourself get screwed thorough it over and over again, until collectively you won't be able to walk. Now that's what I called exuberance!!"

[dadw5boys]

SCREWIN POOR PEOPLE IS WHAT MAKES IT FUN RIGHT ALAN?

[realpolitic]

Greenspan contributed to this crisis with his Ann Rynd, survival of the fittest philosophy.

[FreedomCorpse]

Did Greenspan mention its the worst since WWII just as they planned it to be?

[Rule Of Law]

Funny how they always forget to report that one little point...

[pahpah25]

when will this man greenspan shut up and sit down....this recession is HIS legacy....­........wi­th bushs tax cuts and greenspans cheap money and everlasting war to pay for.......­..........­...what did these fools expect to happen....­..remember the old soviet union and reagan bragging about forcing them to spend theim selves into oblivion by over spending on their military and weapons....guess what , folks, its happening here.

[realpolitic]

Yes, Greenspan did not complain at all about Bush's enormous tax cuts for the wealthy that he knew we could not afford.

[drumz]

He also did has damnedest to thwart any progress during the Clinton years.

[MajorKong]

I can has bread line?

[pmag88]

Didn't Greenspan use the word "fraud" in front of a congressional committee regarding what he felt was not so much a market driven rise in real estate values, but a rigged and gamed system of collusion?

It's fairly clear we were warned about this and it's fairly clear the people in power who should have provided oversight and regulation refused to do their jobs. All of this could and should have been avoided.

[westview]

He warned several times at the start of the Bush years but no one wanted to listen there was such a big pile of money left to spend from the Clinton years and so little time to blow it. And there was such a desperate need for that welfare program for the uber wealthy. How could anyone be expected to have heard Mr. Greenspan's quiet warnings and conservative objections? Why listen when there was so much money to be stolen from the American people. After all there was still a whole treasury to loot plus the unlimited cash from the soon to be deficit spending. Looting the treasuries of the great grand kids for generations. No one throws a party like the GOP.

[JohnFromCensornati]

Greenspan: And I had absolutely nothing to do with creating this mess!