Tuesday, October 10, 2006

Quote of the Day

"'I don't think that the [housing] 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,' Mr Greenspan told a private audience in Canada on Friday."

No, no, no you have it all wrong Greenie. Ultimately, it was the invention of the Q-Tip that led to the housing bubble.

But either way, thank goodness. That's such a relief. I was so worried. Heaven forbid if it was somehow our (the US Fed's) fault. At least now the Fed has carte blanche to once and for all kill the housing bubble on the short side.

14 Comments:

Anonymous Anonymous said...

Ba Da Bing, Ba Da Boom.

Oct 10, 2006, 11:51:00 AM  
Anonymous tom stone said...

good grief,he must have been drinking some of W's whiskey...

Oct 10, 2006, 12:23:00 PM  
Blogger marin_explorer said...

"It came from the collapse of the Berlin Wall"

Hmm..interesting, since Germany hasn't seen a housing boom anywhere near that of US, Britain, or Australia.

Similarly, we should't credit AG for "rescuing" the economy after the tech collapse. Wasn't he in fact claiming that a while back? You can't have this both ways.

Oct 10, 2006, 12:36:00 PM  
Blogger sf jack said...

Didn't the last housing bubble top begin its decline just as the Berlin Wall collapsed (October/November '89)?

So in Marin, I suppose, residents felt a whole lot more comfortable paying 9x median income for the median house, than half that number before the wall came down.

I should note our government hasn't gotten any smaller since then, nor the size of its commitment to entitlements.

Gee, I can't wait to see what premium over renting I'll get to pay for housing (though we'll probably all be dead by then) after terrorism in the name of Islam has ended.

Oct 10, 2006, 1:33:00 PM  
Anonymous pothead said...

Talk smack all you want, but the simple fact is that AG has painted on a much larger canvass that virtually anyone on this blog ever will. He's got access to more and better data. He also looks at interest rates with a wider perspective. Everyone here seems to focus solely the interest rate's affect on housing, that isn't the way macro-economists view the world.

And, if you read the article, he goes on to say that those big picture events are the triggers that allowed for interest rates to drop down as far as they did. Essentially admitting that the Fed does not have control over the big picture like a lot of folks here seem to think.

Oct 10, 2006, 2:15:00 PM  
Blogger Marinite said...

Talk smack all you want, but the simple fact is that AG has painted on a much larger canvass that virtually anyone on this blog ever will...

Pothead, you are being deliberately argumentative and insulting. Of course there are bigger issues. Tensions in the middle east, N. Korea, etc. are all legitimate topics to discuss on this blog because they all affect the housing market to some degree. This blog could be more like the HousingPanic blog if it wants.

The simple fact is that AG refuses to accept responsibility for what he's wrought. Using his logic, as pointed out by yourself, anyone could deny responsibility for anything.

Oct 10, 2006, 2:27:00 PM  
Anonymous pothead said...

Sorry it came off like that, but it sure seemed like you took his comment out of context to fit into a narrow hypothesis. Consider this bit:

Asked why he had not tried to raise interest rates to dampen down the technology bubble in the stock market in the late 1990s, the former Fed chairman said "we tried that in 1994/1995 and failed."

Mr Greenspan said the tightening cycle from 1994 to 1995 was "highly disruptive" but failed to rein in stock prices.

"We didn't diffuse the bubble, we made it worse," he said. "The stock market was flat during the tightening period and when the tightening ended in 1995 the stock market took off."

"We learned that the Fed could not incrementally diffuse a bubble," he said.

Maybe he know's something we don't. You're talking about a guy that spent the last 20 years trying to shepherd our economy (and by extension the world's) through some pretty rough waters.

Oct 10, 2006, 4:53:00 PM  
Anonymous SF Mechanist said...

It's all quite simple really-- the collapse of the Berlin wall made it so that people could easily move between East Germany and West Germany. This caused a boom of the products of rampant capitalist consumerism such as lawn elfs and fuzzy dice on rear-view mirrors. China had to build factories to supply the whole mess going on in East Germany, and as European markets caught up, the Chinese recession threatened the world with global thermonuclear warfare such that the Fed had no choice but to keep the Chinese dragon appeased through HELOC's and low rates on credit cards. But damn the American Consumer... they spent it all instead on dot.com stocks, and then mortages! How was poor Al to know?

Oct 10, 2006, 5:45:00 PM  
Blogger Gasman said...

Fits nicely. When Greenspan acknowledged the housing "frothiness" it gave me some concern because he is always wrong at major market events.

This is much more classic Greenspan. Preducts a turn that wont happen.

Remember that back in '73 before he became a state lackey he announced that there were few times in history when one could be unqualified bullish. That was just before equities embarked on a punishing 2 year plunge of around 50%.

Oct 11, 2006, 8:55:00 AM  
Blogger sf jack said...

"And, if you read the article, he goes on to say that those big picture events are the triggers that allowed for interest rates to drop down as far as they did. Essentially admitting that the Fed does not have control over the big picture like a lot of folks here seem to think."

******

Sure, triggers, what have you - that's all understandable.

What some are saying, and of course you know this, is that Greenspan left those rates too low for too long recently. What sort of "trigger" could that be blamed on?

As we all know, as seen in house prices, he "juiced" the economy so well and for so long there's no lack of credit for anyone!

Oct 11, 2006, 10:25:00 AM  
Anonymous pothead said...

agreed that there is no lack of credit for anyone, but I think that is due to a combination of low rates and an abandonment of lending stadards (not the Fed's baliwick).

I'm not sure that having rates that low was such a bad thing. The overall economy muddled through a pretty heinous period from 2000-2004. Overall we're doing fair at this point so I'm not ready to condemn low rates because of one factor. I'm way more worried about our trade and current account deficits..

Oct 11, 2006, 11:41:00 AM  
Anonymous Anonymous said...

I agree here. I know the current train of thought on all the blogs are that it was a conspiracy to hold it down for RE and to create a consumer spending "bubble", but the FED rate is academically a lot more complicated in it's analysis then this as most know.

Also outside of speculation on blogs, I have not been reading any real economist and\or news articles that echo this speculation - someone here might point to one that indicates Greenspan as having done this for easy lending.

It's easy to look back and say, oh that must have been why - but the rate doesn't create the mortgage product - those that lend and buy the loans do.

Oct 11, 2006, 12:44:00 PM  
Blogger sf jack said...

I realize what you two are saying in your last posts (pothead and anonymous #877,651), but I'm thinking back on what I was seeing at the time. I'm trying not to have a hindsight bias.

And in the summer of 2004, probably in June if I recall, I had the distinct feeling - "Why the hell did the Fed wait so long to start raising?"

I know there's all these academic numbers/figures and personalities of the FOMC to deal with... all that baloney. But to me, from my view (I now often walk by the Fed Reserve Bank of SF yelling "Hi Janet" to Ms. Yellen) I thought they waited about a year too long.

But what do I know.

Oct 11, 2006, 6:22:00 PM  
Blogger sf jack said...

Three things came to mind while bowling in the Presidio last night.

One was the thought, perhaps incorrect, but maybe not, that we as civilians (non-military) wouldn't have been there if not for the Berlin Wall coming down.

Recall all the base closings and conversions in the early-mid 90's (just locally, we have Hamilton, Alameda, that one in Vallejo and the Presidio). It made me think, were the Soviet Union still around and functioning as it once did, would the Presidio have possibly become a National Park?

I can understand further the big picture implications of the Wall coming down. That it certainly affected financial markets and that's what AG is talking about, right? Globalization, productivity gains (some due to technology), etc., allowing him and his merry band to keep rates lower than otherwise.

My second thought was that I'm still stuck on the 9x income the median household pays for the median house in Marin (and granted, the former Chairman is not addressing that directly).

I recall that marinite has shown that the multiple of income one pays goes up over time, even when smoothing the data, including cycles. This happened in a consistent manner well before, and well after, the Berlin Wall came down. See the per capita income figures for Marin (actually much lower than household income, but useful nonetheless) in a chart comparing them to home prices in Marin near the bottom of the link here: http://marinrealestatedata.blogspot.com

Given that data, it does not surprise me that the multiple is higher now than 10 years ago, 20 years ago or 30 years ago. And I understand we may never see see houses again at 3x or 5x household income in Marin. But after reviewing that data, 9x of household income really seems like a "peak".

Thirdly, I understand what pothead is saying about lending standards (or the lack of them) being a partial culprit in this bubble. And that certainly seems true.

However, I would feel remiss in not mentioning that if rates did not remain so low for so long, lending standards would have remained higher. No surprise to anyone, low rates encourage credit explosions. And I don't think it's a "chicken or egg" thing - the affect of low rates over a longer period of time bring about lower standards (than otherwise)... and not the other way around (that's probably obvious).

This is not "news", but I think that at a given time when Fed rates are a lot higher, not nearly as many "homebuyers" would qualify for a loan (as compared to recent times) and housing bubbles or "froth" would be non-existent. Since higher rates increase the risk for lenders and their backers (MBS packagers, what have you).

Anyway, my $0.02.

Oct 21, 2006, 12:22:00 PM  

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