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

[mmckinl]

Greenspan was the architect of this mess ...

Deregulation, non regulation, bad monetary policy and then cheer leading the sub prime mess ... Greenspan should be tried for criminal negligence ...

[Triangle1]

When you retire, it's easy to speculate on the failure of the new administration. It makes your run seem even more glorious.

[TN]

Why was bush dancing in the rose garden the other day?

[themodernleader]

HuffPost's Pick

To my intelligent bloggers. Greenspan is totally wrong in asserting that our economic crisis is the most wrentching since the end of the second world war. There was no wrentching economic crisis at the end of that profound war. Americans had built up tremendous savings. During the war years through 1945 corporations, through the wartime windfall profits tax, paid a full 52 percent of all Federal taxes. There was a steep graduated income tax on personal salaries and residual income. There was a 15% luxury tax. At the end of the war the United States was in much healthier economic, financial condition than before the war .
The great President Truman imposed wage and price controls to keep inflation down while our captains of industry and competent, highly trained employees converted smoothly a war time economy over to a peace time production of autos, refrigerators and stoves. There began an orderly housing boom. Wall Street almost had Preident Truman defeated in 1948 because he stubbornly resisted their plans to run amuk with the Nation's money supply. Some of them could still remember the big money made in the 1920s.
In 1949 with the start of the Korean War, the President immediately raised taxes fully to pay for the war. By the end of his administration there was hardly any deficit, only about 50 million dollars, and the economy had grown by leaps and bounds. Our military was at the height of its strength in our history. Conscripted soldiers came home to the G.I. Bill which furthered their knowledge and skill for the productivity of a golden age in American governance and achievenment.
Harry Truman was one of the greatest leaders in human history. George W. Bush will leave a country in financial, economic crisis, corrupted by years of illegal governance, empty of treasure, destitute of a future, bankrupt and divided. And Mr Greenspan who knows little of our past, contributed mightily through both commission and omission, to our tragic, forlorn condition.

[dadw5boys]

Well Bush is only foloowing thru on the NAFTA commitments as I see it.

For NAFTA to work the U.S. Dollars vlaue must be equal to that of the other South American Countries. How do you lower it's value except by driving down things like home values and raising prices of good and services?

In June according to the F H A another 1.9 million Investor Owned homeloans will be going in to deafult. Approx 9.4 trillion more bad homeloans comming like a tidal wave.

The U.S. Dollar should be equal to the Mexican Dollar after that!

[outnow]

FDR's brain trust set up the basis of the recovery from WW II. When most of your competitors are living in countries ruined by a world war, it is easier to become prosperous. FDR's great plan was to end the British Empire. Truman reversed course in so many ways. The first step was to use the A bomb instead of seeking peaceful resolution. The next was to start a Cold War resulting in the Korean War and the Vietnam War, both useless exercises.

While FDR wanted to end imperialism and the colonial system. FDR told Churchill: "When this war ends there will be no more colonies!"

The Truman faction interpreted the Bretton Woods against the FDR and Keynes intentions. The Bretton Woods system, however, was not a Keynesian system. Keynes speech is on record in 1944 at the conference. FDR wanted to set the United Nations to prevent war. Creating an alliance of states was his goal to prevent colonialism.

The intention of the United States was to use the great military-industrial power, by converting military power back to technological power and preventing Britain from re-implementing global colonial imperial policies throughout the world.

The first step was for FDR to meet with King Saud and gain control over Saudi Oil, which FDR did to the exclusion of Churchill. Eisenhower had to back the British out of Suez in 1953 by threatening to dump their economy. The MIC got its start with Truman as did the CIA.

FDR was against a permanent war department and the establishment of a permanent Pentagon - that's why the building itself was temporary. The Soviet threat was intentionally overblown. Eisenhower warned of its destructive potential.

What ever good Truman did is far outweighed by the evil. I knew him when I was a child. You have falsely glorified a villain, in my opinion. Since then, it has been war hawks and Scoop Jacksons. Both parties have needlessly gone to war again and again.

[chuckieboy]

Alan, I thought you would be able to set yourself apart from your fascists cohorts. I was wrong again, how foolish of me, knowing you are a member of the TAKE PERSONAL RESPONSIBILITY FOR YOUR ACTIONS crowd, I thought you were going to say what a fuckup you are.

[realpolitic]

Yes, can you remember any time Bush and his fellow Republicans have actually taken responsibility for any of their actions? This is the "let's not play the blame game" crowd.

[sculptor]

I brillant man with 20/10 hindsight but sadly 20/1000 foresight.

[DefendOurConstitution]

and I sure hope he's right, cause I think it can actually be worse than the Depression.

[camb94]

There was no economic crisis after WWII -- That was the period where the U.S. had the largest economy in the world producing about 40% of the world's GDP. The last big crisis would have been the Depression.

[realitytrumpsbull]

HuffPost's Pick

Well, Al, I hate to be the bearer of the bad news, here, but you were part of the problem. 9.3 trillion isn't going to pay itself off, here, and you guys can screw around with the interest rates to your heart's content, but the problem is still run-amok federal spending, and until someone takes office that won't tolerate that garbage, someone willing to burn a couple gallons of midnight oil hand-in-hand with Congress to get a 'happening' budget passed, well, then we're just going to keep wallowing in this problem instead of dealing with it directly and professionally. My suggestion? 30% across-the-board federal spending cuts, great starting point, I think.

[schoolmaster]

There is constant talk about abolishing Federal Reserve. As far as Federal Government is concerned, it probably is not a good idea, as they need to have a scape goat, if not a problem solver, when the disaster strikes. The problems may be multifaceted, and what the Federal Reserve seems to be doing is either pump more money or reduce or increase the interest rates. It is like riding a horse holding two strings for control.

[WorkingClass]

The constant talk about abolishing the Federal Reserve is the result of people learning from Ron Paul. The simple truth is, Paul is right. The FED should be abolished. It is an abomination. This is why "fringe" candidates are important.

[loki]

Thank YA President Bush, for removing the last barriers that kept corporations from having free reign in America. Now not only can and did they do what they wanted, they changed laws , ignored rules and regulations, and out of pure greed and stupidity, they have managed to drive us into what Reagan so dearly wanted, an economical train wreck.

We salute you Mr, MBA President, on a job well done. You have done what NEO Cons and Capitalist everywhere have been trying to do since Reagan started the trend. You have made it possible for the Elite to bring America economically to its knees. Job well done sir, well done.

[dolphy]

Alan finally got his head out of W's ass and stopped kissing it, but it's too late. You'll be remembered as one of the architects of the coming recession or maybe even a depression. You better move to Dubai with Darth.

[MysticInd]

And have we all had time to thank you Mr. Greenspan for making this mess?

[Troubledwawa]

I think Alan Greenspan meant to say "since the great depression".

Heck uv a job, Alan.

[NoahVail]

What he is not saying is that it could take 3-5 or more years for home prices to stabilize (at prices significantly lower than current prices). Good luck with that 30-year mortgage. And the $6 gas....

Welcome to the great depression of 2008!

[loki]

Problem is the people who caused this mess wont be jumping out of windows. They will be living in other countries on there money that they converted to Euros over a year ago when they saw this all coming. But the quick profit was to good to divert this , so they just took the money and ran !

Gotta love those capitalist elitist.

[vandegrasse]

We can push them out of the windows, can't we?

[Catspaw]

HuffPost's Pick

As much as I respect Greenspan's long experience, this statement from him makes me wonder if he shouldn't give it all up. At the end of WWII we still had a middle class supported by huge numbers of blue collar jobs. Today, most of these jobs have migrated overseas, and our middle class is in truth vanishing. At the end of the war, petroleum was home grown and dirt cheap, and the country was able to function as if there were no end in sight. Today, in a country where everything from agriculture to home heating to transportation *still* depends on petroleum, we are running dry. There were still railroads, that actually carried people throughout much of the country, at the end of the war. Today we have AmTrak, which hits some of the big cities. Many bus lines, that otherwise could serve smaller places, have gone or are going under. The housing market is just another symptom of a system that has gone very badly awry. While this symptom may in fact fade over time, the others can only worsen.

I submit that we are in fact *much* worse off now than we were during the WWII era.

[mmckinl]

This is the Huff Post Pick !

pulleeeeeze !

[realpolitic]

Yes, it is no longer an American -centric world. Many of these issues are out of our hands now. We must confront energy scarcities and global warming at the same time. Bush has reduced our nation to a really low point.