Greenspan: Housing is 'nowhere near the bottom'

I can't quite figure out whether Alan Greenspan is still big news. He's still capable of headlines, though: "Former Federal Reserve Chairman Alan Greenspan said the U.S. is 'nowhere near the bottom' of the housing slump and is 'right on the brink" of a recession.'

More, from CNBC.com: "... he also warned that 'Fannie and Freddie are a major accident waiting to happen.'

His comments came in an interview today with CNBC. I'll look for more quotes on housing from the interview and add them to this post.

-- Peter Viles
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo: AFP / Getty Images

Comments

[Maria M.]

Cramer's Fed Rant - 1 Year later .. there's an awesome widget with the vid that you can view and post by visiting: http://madwidget.cnbc.com

[Bryan Morris]

How ironic. Mr. Free Market, follower of Ayn Rand and Objectivism (Libertarianism without the legalized drugs), now wants his Uncle Sam, the hapless taxpayer, to bail out the private financial institutions whose greed, irresponsiblity, corruption, and incompetence have led us all to the brink. These hypocrites policy of privatizing the profits while socializing the risk really needs to be the top story.

[l.a.guy]

He's doing a Clinton on his legacy.

Suddenly we're on the brink of financial disaster, but when he was in a position to do something about it everything was great. I think Bernanke starting to look like the sensible one.

[MyLessThanPrimeBeef]

The most patriotic thing Greenspan can do for America right now is to defect to Communist China. They can sure use a talent like him.

[Giacomo]

It's tragicomic. After having been complicit in the creation of the bubble, he's now making this pathetic attempt to again play The Sage -- by stating what has been obvious to alert members of the public for 2 or 3 years now.

[bondinvestor]

the events of the past year have revealed that greenspan really is the hack that those of us who knew him when he was just another sell sider selling economic research to wall street thought he was.

this crisis is a direct result of the fed's failure to (a) prudently manage economic policy during the early part of this decade; and (b) regulate the banks and mortgage brokers.

the truth is that greenspan took interest rates to 1% in 2003 NOT to protect against deflation, but to prime the pump ahead of the 2004 election. he pulled out all the stops to get GWB re-elected so that the libertarian economic agenda of greenspan/cheney (dismantle social security, abolish the GSE's, cut taxes, etc) would have a chance of being enacted during the second term.

i find it incredible that he is pitching the nationalization of fannie & freddie as the solution to the housing/financial crisis. 5 years ago he was saying they should be privatized because the private label MBS market was so efficient. his desire to see them dismantled knows no bounds. it's a shame is that the benefits of the GSE's are difficult to explain to the average joe. let's put it this way: the only reason average americans have access to a 30 year fixed rate mortgage that can be prepaid at any time, is because of fannie & freddie.

the GSE's will be fine, regardless of what he says. what's sad is that the only reason they are facing any credit losses is that home prices in CA & FL were inflated to bubble levels by the non-agency mortgage market. they are collateral damage of the collapse in prices in these two markets.

of course, the bubble was aided & abetted by greenspan's easy monetary policy and unwillingness to regulate the mortgage origination industry. had greenspan done his job as the custodian of monetary policy for the dollar bloc, none of this would be happening right now.

it's shocking watching the man who argued that home prices were set by rationale market forces on the way up (ie, no bubble) confidently assert now that they will keep dropping for a long time to come. he was clueless on the way up; why should he have any great insight on the way down.

and for him to criticize bernanke for saving bear stearns, and extending liqudity to the street through the PDCF is hilarious. how many times did he intervene in the markets to provide liquidity during periods of systemic crisis? if i'm not mistaken, they call it the 'greenspan put', don't they?

the chutzpah of this man is unbelievable. history will not be kind to him. he's a hypocrite, liar and sycophant of the first order.

[Groundhogday]

"the GSE's will be fine, regardless of what he says"

Greenspan is certainly a fool, but as for the GSE's they are technically insolvent, grossly overleveraged, and a threat to the financial system as a whole given their combined $5 trillion in mortgage loan "assets". They will be "fine" as long as the federal government continues to insure their debt infinitely, indefinitely and for free.

[It All Happens on the Margin]

Mr. Greenspan,

We don't care about your consulting business.

You missed the mark keeping rates so low for so long, missed on subprime, missed on broker regulation, missed on adjustable loans, missed on teaser rates, missed on pay-option ARMs, and now you're kicking sand in our faces by telling us what we already know ... and we know who is responsible.

The hard working people in this country will pick up the pieces from the damage.

Alan, don't go away mad, just go away.

[Bryan Morris]

bondinvestor,

Well put. I'm beginning to believe that hypocrisy is the biggest threat to our country, both in the long term as well as the short term. It's just rampant and it's certainly a bigger threat than terrorism. It's the cornerstone of the Republican party and, unfortunately, the Democratic party has seems to have been trying to close their hypocrisy gap for the last 20 years.

[puckhead]

Well said bondinvestor. I nominate this for the Sunday Times.

[Cal]

I'd love if some reporter let him explain all that is going on and how bad it is, then hit him with, "How exactly is this not all your fault?"

Preferably on live television.

The biggest credit bubble and regulatory failure in history and he was the man in charge (in fact encouraging the credit expansion and discouraging all calls for regulation).

[Steve]

When does this idiot go away. When does it soak in to this moron that cannot speak english and hoenstly believes this entire RE disaster is not his fault. What is sad is over educated rubes like this will make millions on books and speaking engagements, even though he destroyed the enonomy.

[dclogang]

"Brink of Recession?", Gasp.... "No where near the bottom" Gasp.. Gasp! Really? abuuuuuuuh.

He must have just started reading the LA Times LA Land Blog!

I know a good nickname for Alan Greenspan, now....

CAPTAIN OBVIOUS!

We aren't on the BRINK of a recession we ARE in a recession and no duh the bottom isn't near. Won't be for several years. Alt-a Tsunmia hasn't even started yet.

The Governator (who I voted for) is laying off a bunch of people and implementing minimum wage to a lot of part time workers. We have a huge deficit. I guess he had to do it. It's going to hurt a lot a people but I don't want to be taxed because the state can't come up with a budget.
This will obviously further people losing their houses.

The Good news is that this will force house prices down to affordable levels again.... eventually. I'm looking forward to affordable houses personally.

[firesale]

After the fact... he knew all about it !

[jb]

Pretty widespread agreement - what I dont get is why we are not raging in the streets? These banks that made these loans should go bust, our politicians that are whoring to banks/wall street should be removed from office. We refuse private gains and public losses!!! It is time to rage and burn and pilage until we are heard or they are dead.

[Rational Renter]

This should be obvious to everyone by now.

Why Prices Won't Stop Falling.
http://findingbottom.blogspot.com

[Roger Ramjet]

Makes no sense to me here in San Diego. Shopping mall parking lots are full. Porches, MB's speeding past me at illegal speeds on the freeway. Gas crisis! Really? Housing is circling the drain! Really? Economy is bad! Gosh golly gee whiz. Indian casinos are jammed packed with gamblers. I don't get it.................

[E]

He really could use some better looking glasses.

[Michael Snyder]

Why am I getting the same sick feeling I did when Regan's Alzheimer's was made public.? Suddenly it wasn't a Jelly Belly driven sugar crash that led to snoozing in cabinet meetings, but a genuine dementia. Now Mr. Greenspeak has declared a 50 50 chance of a recession and a predictable net real estate value of $0. Am I the only one seeing the onset of dementia or is the disconnect between America's "ruling class" and reality finally reached sociopathic proportions?

It's not only real estate. As mortgage rates continue to rise and lending standards become more draconian, the Fed has extended "emergency lending privileges" for their Wall St. buddies until January 30th. I'm guessing that's to cover losses as the commodities run up fueled by the Fed's 2% loan give-away deflates. The sell off of Exon Mobile stock the same day shareholders received a record payout of $2.22 per share shows the "whale's" take on the condition of the market. Bloomberg reports a dollar increase in the cost of oil translates to an average eleven cents per share rise in the dividend paid by oil companies. Am I the only one connecting the dots here?

This administration's economic policy has been based on oil & financial stocks to the exclusion of the rest of the economy. Grandiose theories of accelerating capitol have created a five trillion dollar derivatives market where Harvard trained Wall St. experts make bets that would make a Vegas bookie gasp. The net result has been the deterioration of the American lifestyle and a reduction of the "American dream" to survival.

The only increases in GNP for a year have been the direct result of increased spending on fuel. The DJIA is following the real estate market with a 20% loss in value since Greenspan's tenure and this bozo is calling a 50 50 chance of a recession. It's time for Alan to go fishing.

[LA Renter]

I watched the interview and Dr Greenspan was interrupted by Maria B just as he was making a very important comment about foreclosure rates. Mr Greenspan started that 85% of people who are upside down in their homes are currently continuing to make payments on their loans- they still have not defaulted. His next statement was that because of this one cannot predict the number of foreclosures by looking at the default rate; "there is no lead time" - this is when he was interrupted and his comments may have been misunderstood by Maria B.

Was Mr Greenspan trying to suggest we should expect a lot more foreclosures than current predictions because one needs to look at the number of "upside/down" loans to predict foreclosures as opposed to the number of defaults? Did he try to suggest that upside down borrowers default with no lead time? I may be wrong, but I think that's what he was trying to state. We should have a lot more foreclosures as more and more of the 12 Million upside down borrowers abandon their homes.

[Ralph]

I read his latest book a few months ago. What a bloated ego! He and the fed created the bubble by lowering interest rates too much. Now he’s dumped the mess in Bernanke’s lap and wants to play elder sage. Wish he’d just shut that pompous trap of his. (Note that Obama’s meeting with economic experts on the 28th did not include Greenspan)

[Jack]

The super low interest rates during Greenspan's rein over the Fed enabled borrowers with excessive purchasing power to create this bubble.

An interesting dynamic occurred in bubble areas. Home buyers shifted from buying price to buying payments.

Enable a borrower with a 3% interest only loan, with a $1800 a month payment he has the ability to service a $720,000 mortgage. Add a healthy dose of hype where prevailing belief becomes housing is a can't miss way to get rich and you have people bidding up home prices to levels that can't be sustained.

Once a return to more normal lending conditions this same buyer still has the same $1800 to spend, but now it's a 6.5% fully amortized, fully documented loan. His payment now can only services a $284,000 mortgage. The difference between the 720k and the 284k is your bubble.

Home prices are re-aligning with their fundamentals so prices are falling. The income to home price ratio has historically been home prices at 2-4 times income levels for the area. In bubble areas, the ratio shot up to 9 to 1 and more in some areas.

When the income to home price ratio returns to its historical norm, prices will be pushed downward.
There is a great tool found at www.UshousingMeltdown.org where you can enter in your zip-code and learn the historical ratios, bubble ratios and what happens to prices when we return to the historical ratios. Look for the Ceiling Fundamental.

[Lou]

Who remembers during the primary when Hillary Clinton wanted a panel of economic experts to help her on the economy that included Greenspan? HAHAHAHA! Paul Krugman said that Obama should pick Clinton as her VP because of her economic expertise. What a joke.

[Nelcisco]

Greenspan is behind the curve in his thinking, right at the brink of recession? we're there now!

[the problemwithcaring]

Who can remember what McCain said about Greenspan and why? It's not like he won't be changing that stance tomorrow.

McCain Wants Greenspan, Dead Or Alive
Oct. 2007
http://tinyurl.com/BGlobe

(AP) Republican John McCain said Thursday that as president he would appoint Alan Greenspan to lead a review of the nation's tax code - even if the former Federal Reserve chairman was dead.

"If he's alive or dead it doesn't matter. If he's dead, just prop him up and put some dark glasses on him like, like 'Weekend at Bernie's,'" McCain joked. "Let's get the best minds in America together and fix this tax code."

McCain: It's about the economy
Dec, 2007
http://tinyurl.com/CBSNews

"The issue of economics is not something I've understood as well as I should," McCain said. "I've got Greenspan's book."