More Greenspan Incompetency

The Huffington Post has done a nice job of reviewing the 2004 FOMC transcripts.

http://www.huffingtonpost.com/2010/05/03/greenspan-wanted-housing_n_560965.html

This is certainly not eye opening stuff. We all know that Greenspan is as incompetent as they come, but its still mind boggling the level of such nitwit behavior that was exhibited. If this type of monetary policy can be modeled from the nitwit school of economics, I really have no idea what the idiots at the FOMC are doing today. Ben Bernanke is willfully taking the country for a ride off the cliff with his bubble inducing ZIRP.

When someone says they had no clue that housing was a problem or that it was becoming a bubble, that person is bottom line rationalizing incompetent willful destructive behavior. It is disingenuous to state differently.

Greenspan at every opportunity downplayed any talk of bubbles and over investment. For Instance, Atlanta Fed Governor Jack Guynn has this to say:

"A number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties–selling them quickly at higher prices."

Again, all of these worries were brushed aside by Greenspan. Greenspan wouldn't budge from his roots of deregulation, free markets, and financial innovation.

This should not come as a surprise to anyone at this point. Greenspan has been unmasked for the fraud that he is. His total rationalization of his destructive Fed policies are all well known. First it was productivity gains, then globalization, then global savings glut. Then Ben Bernanke got on the Greenspan wagon with the idea that deflation was the killer. All of these failed policies are just an excuse to print money to make Wall Street happy.

If anyone wanted to know where Greenspan's head was with regards to Housing?
Here it is:

Remarks by Chairman Alan Greenspan
Understanding household debt obligations
http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/

"One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the "option adjusted spread" on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners' annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward."

"American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance."

Here Greenspan is calling all of those fixed rate mortgage holders idiots for locking in their rates.

You don't think Wall Street structured finance desks were listening? Why were Neg Am, ARM, Pay Option, and other destructive mortgage products such a problem? Greenspan was telling Americans why are you acting irrationally by locking yourself in a fixed rate? He was begging people to speculate on housing. Its the same today as Bernanke is begging people to speculate in financial markets. Where did all of this speculation lead us?

The simple idea that deflation is such a worry leads us directly into destructive bubbles. Bernanke and Greenspan love to print because they are closet inflation junkies.

William McChesney Martin forcibly warned the Senate in 1957 of the problem of inflation.

http://fraser.stlouisfed.org/historicaldocs/762/download/30925/martin57_0813.pdf

This piece is littered with the dangers of letting inflation run wild and how this policy damages dollar purchasing power.

It is just unfathomable that Greenspan and Bernanke held the same office as William McChesney Martin.