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Greenspan: "We are on the Brink"

Written By Brian Hicks

Posted June 24, 2008





Is it just me or has Alan Greenspan become the guest that wouldn’t leave?

I mean don’t get me wrong. I just love the guy. He is kind of cute and cuddly in a grandfatherly way. And I hear he used to blow a pretty mean saxophone back in the day, which is a big plus in my book.

Heck, he even dated Barbara Walters for a time before he settled down with Andrea Mitchell—a total ladies man.

But here’s what I really love about the guy. He bailed his banker buddies out of the tech slide by creating an even bigger bubble in housing, one that threatens to take us all into the abyss. Now that takes some real talent.

Of course, Alan won’t exactly own up to but it is true—without his tenure at the Fed the biggest bubble in U.S. history never could have happened. A 1% Fed funds rate for 12 months was all that housing needed to become wildly overvalued, and Alan was more than willing.

He even managed to be completely asleep at the wheel, when the banking industry threw away 40 years of banking wisdom under his watch in an idiotic reach for more profits.

And let’s not forget that he suggested that adjustable rate mortgages were the way to go at the exact time those rates bottomed.

But now that he has stepped down from the Fed, he hasn’t exactly ridden off into the sunset.

In fact, on Tuesday he warned that the U.S. economy was on the brink of a recession, with the chances of that happening now at more than 50 percent.

Moreover, he remarked a quick recovery was unlikely. “A rebound at this stage is not something I think is in the immediate outlook,” he said.

But that’s not all. He also took the occasion as an opportunity to try to rewrite history again, saying he did not believe his low rates created the housing bubble. “As far as I’m concerned, the data do not support it. The housing bubble is clearly an international phenomenon,” he said.

And you thought all housing was local.

Of course, that is little better than blaming it all on the fall of the Berlin Wall like he did a few years ago.

Meanwhile, the bubble that he created continues to unwind crushing home values every step of the way down.

In fact, here’s the latest data from the Case/Shiller Index. It was released this morning and it not pretty.

From Reuters by Lynn Adler entitled: Home prices extend record slide in April: S&P

“Home prices extended their record slide in April, with every top metropolitan area now posting annual losses and many showing double-digit declines, according to the Standard & Poor’s/Case Shiller home price index report on Tuesday.

However, the monthly pace of the decline showed some moderation.

The S&P/Case Shiller composite index of 20 metro areas fell 1.4 percent in April from March and slumped by a record 15.3 percent over the year.

Bigger declines of 2.0 percent in the month and 15.9 percent from April 2007 had been expected for the 20-city index, according to the median forecast of economists polled by Reuters.

The 20-city month-over-month decline was the smallest drop since the August-September 2007 period.

S&P said its composite index of 10 metro areas slid 1.6 percent in April for a record 16.3 percent annual drop.

Home prices in a dozen of the metro areas have fallen for eight straight months.

“If there is anywhere to look for possible improvement, it would be that the pace of monthly declines has slowed down for most of the markets,” David Blitzer, chairman of the Index Committee at S&P, said in a statement.

Still, 13 of the top 20 metro areas are posting record annual declines and price losses are in the double digits for half of the areas, S&P said.

A slower pace of decline is encouraging, but “the bad news is that the price is still declining,” said Richard DeKaser, chief economist at National City Corp in Cleveland.

“The potential is a vicious cycle which we may already be experiencing. Falling home prices are leading to more foreclosures, which cause a further decline in prices,” he added.

“It’s going to be a slow process, but the less overblown markets will stabilize first and we’re getting a hint that that’s beginning to happen,” said Pierre Ellis, senior economist at Decision Economics. “Ultimately, with a very long lag, the serious bubble markets will settle down, too, but not in a time frame that is meaningful for markets now.”

“The Maestro” my foot.

So is it just me or has Alan Greenspan overstayed his welcome?

I, for one, have heard enough.

What say you?

By the Way….Did you know that Alan Greenspan works for PIMCO? He does, and for some reason he always seems to show up with an arguement for rate cuts on the same day that the FED begins thier FOMC meetings.  PIMCO by the way hates the idea of rate hikes.Go figure, its bad for bonds. 

Here’s what PIMCO’s Paul McCulley has to say about them. It is an interesting read to say the least. It is entitled: A Kind Word For Inflation