Amen!

The Fed isn't run by one guy..there's a Board of Governors and the Open Market Committee in place.  They make these decisions by vote.  The Fed Chair does not have the power to raise or lower rates on his own. 

The Fed Chair is more of a spokesperson than anything.  Former Fed economist Edward Lotterman says "the most common error in reporting on the Fed is to overestimate the power of the Chairman of the Board of Governors".   

Very good points, you make it pretty simple.

My understanding is that the Fed's main purpose is to keep inflation in check, not to manipulate any one market such as housing.... obviously things could have been done differently, but to call him the "evil villain" is taking it a step too far.  But I won't be buying his book either

Adam, thanks.

Eric, You can believe that if you want. The "influence" of the Fed Chairman is immense. The problem we have now is that there are not enough monetarists on the Federal Reserve Board. Too many "politicians" and not enough economists.

Bill Roberts

Ron, thank you. It really is pretty simple.

Bill Roberts

Kevin, The Federal Reserve System's purpose is to regulate the nation's banks. The Congress is charged with managing the nation's money. For the Federal Reserve to keep inflation in check is a "side" benefit of their banking duties, e.g. the discount rate.

Bill Roberts

Obviously an abbreviated history of events but relevant never-the-less.  The thing is the economy is easy to manage from hindsight but tough as heck to know what is going to happen.  Take 1996 for instance when Clinton signed the law allowing the $250.000 exemption.  That forever changed real estate holdings, as well.

Bill...

I am kinda nervous to comment on your blog.

I better keep my little ole opinions to myself.

I'm not afraid to say that I'm out of league :)

TLW...ROAR!

Chris, Everything is easier in hindsight. That doesn't make it any less true.

Billie, thanks  for stopping by. Not all of my posts are controversial.

Bill Roberts

Bill - thanks for the heads up on your post. I am afraid my "economist" credentials are slim to none, so I don't have the knowledge to judge if one or two people, even of Greenspan's stature, can have such a profound effect on the market. One of the main objectives of the Fed, the way I understood it" is to keep the check on inflation. This is what effects the entire economy, not just housing. Of course, housing has a ripple effect on the economy, as consumers buy less or more depending how much equity they feel they can spend or borrow against. Perhaps, the problem this time was with the investors in the hedge funds and other similar instruments who were buying-up subprime mortgages, without necessary risk control. As I said, I am not an expert.

BILL:  Thanks for the interesting take on the cause and effect of rate changes.  It makes a lot of sense now.  Good job Bill.

Faina, "One of the main objectives of the Fed, the way I understood it" is to keep the check on inflation" This is not the statutory role of the Fed but rather Grennspan and Bernanke's stated objective. As for Greenspan's influence on  the entire economy, I can only say that little things can lead to major consequences. There is an old saying that "for want of a nail, the shoe was lost, for want of the shoe the horse was lost, for want of the horse the rider was lost, for want of the rider the battle was lost, for want of the battle the kingdom was lost, so for want of a nail the kingdom was lost." This is a long way of saying that because of Greenspan's influence the Fed reduced rates down to zero. Mortgage rates followed this downward path to the lowest rates in my lifetime. These low rates created the "environment" for all the troubles that followed. 

All this talk about hedge fund operators is just obfuscation. Of course they jumped in. There was money to be made. Their action was a "result" not a "cause."

Our industry is suffering because of what is happening NOW. We need to understand all the causes and effects. If we don't, then how are we going to do anything about it? If we can't even agree on the effect of this latest rate reduction, we are just adding to the confusion instead of clearing things up for our clients. We need to be able to tell them things are moving in the right direction. It's OK to come back to the real estate market.

Thanks for participating in this necessary conversation.

Bill Roberts

Adam, I wish more people could "get it." We are in a difficult period right now.

Thank you.

Bill Roberts

Bill- I knew you were going to write this post after I read your comment on Faina's post. I am glad you wrote your post. I never understand why anyone would put so much faith in just one man. I remember I would be somewhere and people would say, Everyone be quiet, Greenspan is going to speak.  I wondered then why would it all hang on one man. Isn't that a bit dangerous? It is a lot of power in the hands of a few; not a good thing for a republic. Katerina

Katerina, 1913 was a very dark year for the US. That was the year that the constitutional amendment passed to allow personal income tax and that was the year congress created the Federal Reserve System and abdicated their control over money.

We're just making the best out a bad situation. In some ways it would be nice to "turn the clock back" and rethink these changes.

Bill Roberts

Bill- But the personal income tax was supposed to be a temporary thing! What happened! Katerina

Katerina, When it was "argued" before Congress, the proponents said it would never exceed 10% so what was the big deal?

Bill Roberts

I noticed how "Greenspin" got out and retired so it didn't look like it was "his fault"  He knew what would happen.    Great post!

Lexa 

Lexa, thank you very much. You obviously "get it."

Bill Roberts

Bill, I have a doctorate in this junk.  I want to congratulate you.  You didn't miss a beat in your analysis.

Now, to make matters worse, this moron whose credentials are the ability to double-talk better than that guy Crosby who used to be on the "Ed Sullivan Show," has resigned but he still wants to run the show.

Wonder if he can spell Economic Alzheimer's?

Bill, your comments mean a lot to me. Thank you. The real problem with Greenspan is that people still want to listen to him. In our business one would hope for a little more sanity.

Bill Roberts

Very educational post Bill.  I always appreciate learning a little more about history.  Didn't know that 1913 was the year in which the personal income tax was instituted and the Federal Reserve Board formed.  History gives perspective.

Lola, Thank you for reading this. I know I can be a little pedantic, but there is a lot to know.

Bill Roberts