Greenspan, The Evil Villain by Bill Roberts
Everybody talks about Alan Greenspan like he is some kind of God or something. When Greenspan talks Wall Street listens. Give me a break!
I just can't take any more Alan Greenspan. He ought to just keep his mouth shut. He caused almost all of the problem.
Let me see if I can recap it here in a few words. When he drove rates down to zero, mortgage rates followed. Home buyers (not the speculators) buy homes by how much they can afford to pay each month. As rates came down so did their payment amount. They could afford "more house." It shouldn't be surprising that prices rose because of this. The buyers could either get more house or they could pay more for the house they wanted. And they did. Houses were selling for more than the list price. After all, nature abhors a vacuum. With their increased purchasing power price increases were inevitable.
The speculators saw what was happening and jumped in with both feet. Increased demand fueled by ever lowering interest rates caused the real estate market to spiral up, up, and away. Everybody was getting rich. Nobody wanted the party to end. But we knew it would.
When Greenspan started raising rates, home buyers could no longer afford the houses at current prices. They stopped buying. The price appreciation then also stopped. Without price appreciation the "flippers" could no longer afford to hold their investment houses. They needed appreciation to pay holding costs and transaction costs. Flipping just didn't make sense anymore. They started bailing out of the market as fast as they could, selling at any price.
This fueled a downward spiral. Prices were dropping like flies. Many of the home owners who bought at the top of the market found themselves "upside down." They probably could have lived through this but for one thing: they had adjustable rate mortgages (ARMs) that would have to adjust eventually (more like soon), and they were not paying anything on the principal. They had "interest only" or even "negative amortization" (Neg Am) loans. With rising rates mortgage payments were set to explode. And they couldn't re-finance because they owed too much.
Foreclosures were coming. Lots and lots of foreclosures. So damn many foreclosures that it is of epidemic proportions. And prices will fall some more.
If the rate hikes came a little slower, the market would have leveled out. Speculators could have gotten out of the market without taking a kamikaze plunge. With stable home prices the "real" home owners wouldn't have been upside down. Re-finance might have been a real option for many of these people. And foreclosures would be a whole lot lower.
If you follow this and agree with my conclusions you see that Greenspan and Bernanke caused almost the entire problem. What a jerk to now "blame" everybody else, and to profit from it by giving speeches and writing books. I wouldn't give him a penny, and nobody in our industry should either.
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