Former Fed Chairman Alan Greenspan Admits to Mortgage Dilemma on "60 Minutes"

By
Mortgage and Lending with Diverse Solutions

If you read my previous article, "Pointing the Finger At Who Is To Blame," you know that the Federal Reserve is often criticized for not having stepped in to resolve our credit problem earlier on. To be more specific, the Fed and Alan Greenspan are criticized for having kept interest rates low for far too long a period of time.

In an article by Jeannine Aversa, AP Economics Writer, she writes about prior Fed Chairman Alan Greenspan and his omission to having been aware of our mortgage dilemma. Here's an excerpt from the article:

 

"'While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,' he said in a CBS "60 Minutes" interview to be broadcast Sunday. 'I really didn't get it until very late in 2005 and 2006,' Greenspan said."

"The Greenspan Fed from early 2001 to the summer of 2003 had slashed interest rates to their lowest level in decades. It was done to rescue the economy from the blows of the bursting of the stock market bubble, the 2001 recession, the terror attacks and a wave of accounting scandals that shook Wall Street.

Critics say the Fed kept rates too low for too long, encouraging a Wild West mentality in housing."

 

What are your thoughts? Was the Fed, under the guidance of Alan Greenspan, the sole perpetrator behind the credit problem that we face today?

My Opinion:

I think everyone should be held accountable to a certain extent.

--> A manipulation of the capital markets made the risk/reward incentive enticing enough for investors to back the lenders.

        --> The lenders then pushed the envelope by continuing to open up loan programs

                --> The brokers on the street level pushed these loan programs with some help from their comrades, the appraisers

                        --> then borrowers jumped at owning as much property as they could with hopes of "flipping" their investment and in the process took the lowest teaser rate bid being offered by the pool of brokers.

I think the source of the problem in it's simplistic form was: "Easy Money" being issued.

And it was perpetuated by everyone!

  

>>>>>>CONTINUE<<<<<< 

 

Recent Articles: 

Pointing the Finger At Who Is To Blame

The HOME POSSIBLE Financing Program

Loan Foreclosures At New High

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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I disagree.

I do not believe that there is anything with low interest rates.  It's when they threw out the documentation, qualifying processes, verifications, enforcement of regulations and guidelines that we got in trouble as an industry.

If you put a trough of slop in the middle of the farm yard, the pigs will come out to eat and wallow.

 

Sep 13, 2007 12:58 PM #1
Rainer
106,264
Ricardo Bueno
Diverse Solutions - Los Angeles, CA

Lenn: I'm not agreeing with the article. I have to say that you're right! It was the easing guidelines that perpetuated the problem; Stated Income, Stated Assets, No Doc, exceptions left and right! 

And I don't think it's fair to point the finger at the Fed. As I said in my previous article, it was a problem perpetuated by everyone! 

- Lenient Underwriters

- Lending Institutions just giving money away

- Brokers pushing certain loan programs (Option Arms) to satisfy their best interests

- Appraisers pushing the limits on their appraisals & underwriters waiving the "ok" flag

- Buyers hungry to purchase despite the fact that they need their brother, sister, uncle, aunt, mom, dad, and cousin's income to supplement the mortgage payment

etc.  

Sep 13, 2007 01:16 PM #2
Rainmaker
201,658
Stephanie Edwards-Musa
thredUP.com - The Woodlands, TX
knitwit at thred UP

Hi Ricardo, I believe that Wall Street had a lot to do with it also.   Ask and you will receive. 

Still workin on that bio.

Sep 13, 2007 02:26 PM #3
Rainer
106,264
Ricardo Bueno
Diverse Solutions - Los Angeles, CA

Stephanie: very true Stephanie! Thanks for adding them to the list. It seems the risk/reward incentive was enticing enough back then, now their gone and Elvis has left the building along with them! 

YOU'RE STILL NOT FINISHED WITH THE BIO? AAHHHHH!!! J/K :)  

Sep 13, 2007 03:35 PM #4
Rainer
33,950
. .
no thanks - Harlem, MT
I don't think that the Fed, under Alan Greenspan, is responsible for the current "credit problem" that we face today. I don't think that we are experiencing a credit problem today. I think that investors were willing to take big risks and reaped big rewards for lending to sub-prime and Alt-A borrowers until it proved to be more of a risk and less of a reward when those borrower defaulted. I don't see the correlation of the Fed's low interest rates to today's mortgage fallout.
Sep 13, 2007 04:10 PM #5
Rainmaker
145,798
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
Lenn and Stephanie have this one nailed.. too much pandering to Wall street and not enough oversight have led to our current problems.  Low rates were not the problem as much as widespread abuses of the system..
Sep 13, 2007 05:56 PM #6
Rainer
48,163
Ethan Dozeman
Realty Executives Platinum Group - Grand Rapids, MI
Real Estate in Grand Rapids

I think it all comes down to personal responsibility and the lack thereof for some people.  It is hard to point todays problems at one certain thing.

Sep 13, 2007 10:43 PM #7
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