Is Alan Greenspan Responsible for the Real Estate Problems?

Yesterday I had the opportunity to interview Bill Fleckenstein on his book Greenspan’s Bubbles – The Age of Ignorance at the Federal Reserve Board. Throughout the book, Bill goes through the almost arrogant attitude of Alan Greenspan and how he thought that he could control everything through the Federal Reserve Board and the manipulation of interest rates.

In the book, Bill writes about some of the financial catastrophes that Alan Greenspan had a part in which include:

The Stock Market Crash of 1987
The Savings and Loan Crisis
Y2K
The Tech Bubble
The Housing Crisis and Credit Crunch

The book is a disturbing account on how things really work at the Federal Reserve Board and how out of touch they are with reality.

At one point during the real estate boom, Alan Greenspan actually encouraged the use of adjustable rate mortgages as a way to finance real estate. Now adjustable rate mortgages are the problem today and I would suggest that they are the main reason so many people are losing their homes.

The irresponsibility of that ringing endorsement of adjustable rate mortgages by Alan Greenspan came at a time when interest rates were at historic lows. Translated, they had no place to go but up. That would make an adjustable rate mortgage a horrible mortgage for new home or a refinance.

I asked Bill (who has closely followed Greenspan’s career), “What was Greenspan thinking when he endorsed the use of adjustable rate mortgages?” It was real silent on the other end of the phone line. I could just picture Bill shaking his head and then saying, “Who knows?”

Unfortunately, Ben Bernanke is equally as overconfident that the Federal Reserve Board can just fix things. I think that in time we are going to discover that the Federal Reserve Board has very limited power over this current credit crunch.

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