It's looking more and more like June was the peak (witness last week's disappointing new-home sales, pre-Katrina), as various problems begin to surface around the country.Good Points. Then he takes a swipe at Greenspan:
To some degree, the housing market is a compendium of local markets, unlike the "centrally located" though all-encompassing stock market bubble. There is no Nasdaq or Dow Jones housing index. For that reason, as the housing bubble unwinds, it won't be quite so obvious to folks around the country unless it's happening in their community. ...
That house prices have gone up a lot is not in itself the problem. If they'd risen in an environment where folks were behaving prudently with their financing arrangements (i.e., putting 5%, 10%, 15% or 20% down and taking out 10-, 15- or 30-year mortgages), we might be set up for a dip in prices, as has occurred from time to time. But that's not what we'll witness, thanks to the complete abdication of responsibility on the part of financial institutions, where seemingly no loan was turned down. Thus, those of us who talk about a housing bubble are really referring to a credit bubble.
That leads me to Alan Greenspan -- the very man who created the conditions for the stock bubble and the housing bubble -- who (1) claimed that real estate couldn't experience a bubble, (2) actually suggested that folks obtain adjustable-rate mortgages as short-term rates were making their lows, and (3) has been unable to realize that the Fed should have been warning banks about their imprudent lending standards.
But if you can't see a problem, you can't try to head it off at the pass -- just as he was oblivious to the bad real-estate loans and junk-bond "investments" that helped precipitate the 1990-91 S&L collapse.
Ironically, in 1985, as a paid consultant to Charles Keating's Lincoln Savings & Loan, Greenspan proclaimed that its management was "seasoned and expert" -- with a "record of outstanding success in making sound and profitable direct investments." He later wrote a letter to Edwin Gray, then-chairman of the Federal Home Loan Bank Board, telling Gray to "stop worrying so much," and "that deregulation was working as planned." Greenspan noted 17 S&Ls that had just reported record profits. Within four years, 15 of those 17 institutions were out of business, costing the Federal Savings & Loan Insurance Corp. $3 billion.
Just as the masthead of my daily column says "All roads lead to inflation," by my reckoning all financial problems lead back to Greenspan. I have not penned a Greenspan rant in some time. Given all the focus on his speech last week -- and the fact that he's getting ready to ride off into the sunset -- I will have a special follow-up column tomorrow to reprise his comments. Stay tuned.
But the best quote from the article is "Against this backdrop of abuse, the story quotes one brave Columbus appraiser named Lori Austin: 'Nobody's looking out for the buyer.' Well, that, in fact, is true. No one is looking out for the buyer."