Greenspan week (continued)

Alan Greenspan showed up on Meet the Press today. The funniest part of the whole show was when Tim Russert read what sounded like Paul Krugman's entire article about what a poor job the former Federal Reserve chief had done in advising on the Bush tax cuts.

Naturally, the response to Krugman's barbs sounded a lot like the mini-filibusters that were commonplace during Congressional testimonies when elected officials asked questions that he really didn't want to answer.

In responding to the very direct question of whether he was responsible for the bursting housing bubble, the following reply came:

No. Shall I explain? First of all, I did make a speech in February of 2004 in which I explained a fairly interesting analysis by the Federal Reserve staff which said that there were a lot of, a lot of home buyers who would do far better were they to take adjustable-rate mortgages, because they weren't going to live in the home long enough and the price they were paying to get the fixed-rate mortgage was exceptionally high. Now this, incidentally, was not subprime, this was prime adjustable rates. A week later I shows up--show up at the Economic Club of New York, and, with a thousand people asking me all sorts of questions--I shouldn't put a thousand, a thousand people there and a couple people asking me questions, the question that came up right at the top, "Are you, in this--in this day, disparaging the 30-year mortgage?" Because the issue was that vs. adjustable rate. And I said, "No, on the contrary. When I take out a mortgage, I take out a 30-year fixed-rate mortgage." I was referring to a special, small category of people. But it had nothing to do with subprime.

But with the whole housing boom, we're dealing with a world problem. More than two dozen, two dozen nations are experiencing exactly what we are experiencing. In fact, our housing price boom is less than the average, and this is very clear--this very clearly calls for a global explanation, not for an individual explanation of what central banks do. And, indeed, central banks around the world have largely lost their power to affect long-term mortgage rates because it's global forces which are pushing it, and we proved it. We tried to raise the rate in 2004 and we failed. We tried again in 2005 and we failed. And so it's very clear to me that central banks, ourselves, the Federal Reserve, included, had very little control over the extent of that boom.

This too from the WSJ economics blog from an interview with Frankfurter Allgemeine Zeitung, a prominent German newspaper.

Once again, the housing bubble - your fault? just a little?

Greenspan also refutes critics who say the Fed kept rates too low for too long after Sept 11 and therefore contributed to the U.S. real-estate bubble. Rather, he holds the general, worldwide decline in long-term interest rates — which he says the Fed had no tools to combat — responsible: “The central bank in this country is no match for bull markets that have developed in the last generation.”

Greenspan predicts there’s likely to be a further sharp fall in U.S. house prices, which should dampen consumption: “As a consequence, that will affect consumer spending, because … a substantial part of consumer spending does not come directly out of income, but out of assets, finance by debt.”

Someday this will all be end.