Who, Me? Yes You, Mr. Greenspan

Peter Schiff writes in the article that appeared in Lewrockwell.com [emphasis mine]:

"... in a speech this Tuesday before the National Association of Realtors, Sir Alan “the-bubble-blower” claimed that his low interest rate policies in the early and middle years of this decade had no effect on mortgage rates or real estate prices. As a result, he claims no responsibility for the subprime mortgage crisis.

"His primary defense is that mortgage rates were a function of long-term interest rates which were simply not responding to the movement in short-term rates, which he did control. While it is true that the flow of capital from foreign creditors with excess dollars did keep long rates low despite rising short rates, this “conundrum” was not the leading factor in the housing bubble. Although rates on thirty-year fixed rate mortgages are based on long-term bonds, by 2005 such loans had become an endangered species. The housing bubble was all about adjustable-rate mortgages with 1–7 year teaser rates primarily based on the Fed funds rate.

"Greenspan expresses exasperation now, as he did then, that his careful nudging of interest rates higher by quarter-point increments did not translate into corresponding increases in long-term rates... If the “measured pace” of his quarter-point hikes were too slow to produce the desired effect, why didn’t Greenspan jack up the pressure?

"The bottom line is that Greenspan fathered the housing bubble and now he refuses to acknowledge kinship of his wayward child. His denial of responsibility is an act of stunning bravado, and is a testament to his ability to turn even the simplest of situations into an impenetrable tangle of theories and statistics. The private sector jokers who now hold top dishonors in our pack of economic villains are easily trumped by the Maestro. The fact that Greenspan still has any credibility shows just how little understanding the general public, including Wall Street and the media, actually have about this crisis."

Well said. I have nothing to add.

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