Just like they should have switched to ARMs when this idiot told them to.
No, no, no. Not an idiot --just a lying, cynical, self-serving political hack. He knew exactly what he was doing (and for whom), what he was saying, and who his audience was at all times.
Thanks for that redirection on AG, CR.
The difference is you have a smaller (but devoted!) audience that is attentive (more or less), critical (more or less) and not subject to those astronomical fees.
Let's hope the really important trend is one of declining interest in Mr Wrinkles and coninuing and growing support for your very fine blog.
On the 1973 recession... I'd like to start off with a quote from Jan. 7, 1973. "It is very rare that you can be unqualifiedly bullish as you can be now," Greenspan commented to the New York Times when he was president of Townsend Greenspan. That was two days after the 1973 stock market peak, when the market was on its way to declining 50 percent over two years, and we endured the worst recession since the Great Depression.
I found this quote over on Ben's blog very illuminating:
Private bankers warned Federal Reserve Chairman Alan Greenspan and governors in December 2002 that consumers were taking on too much debt and that the boom in housing prices was unsustainable, Fed documents made public recently by the Financial Markets Center showed.
Of course whats stalling the housing market is the size of household debt relative to after tax income. The ratio of this debt to income has been rising rapidly every quarter through the second quarter of this year. The housing market will not recover until this ratio falls to pre-bubble levels. Its currently at 130% and was 94% in the second quarter of 2000 and 88% in the second quarter of 1995, so it has a loooong way to fall. AG is such a turd.
While the crash only took place six months ago, I am convinced we have now passed through the worst and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.
Herbert Hoover, President of the United States, May 1, 1930
Really enjoy your blog. Found it today as I was searching for quotes that Bernanke and Greenspan made regarding the housing market this week. You are now my economic eyes on the real estate market.
with a continued negative savings rate and ridiculous debt to income levels where does Alan think support for current prices is going to come from? i for one don't see where the plethora of buyers are going to emerge from in the spring when the inventory hits the streets.
After hearing this non-sense comment for Greenspan, I lost all of my respect for him. After all he has been a corrupt individual who was at the highest economical position in this country.
Heaven help us. Well, not all of us, only those who are in debt up to their eye-balls.
Touche,
On the general topic of taxes:
The tax code has propped up values for decades with the interest deduction. Now, with the 2/5 year exclusion, there's a much larger built-in inflator to principal residence values. That tax law probably contributed to the house flipping we saw up until recently.
All tax laws fall into the "Law of Unintended Consequences".
I doubt if either of these laws will ever disappear. There's too much fallout.
we are in the very beginning of the first national housing downturn since the great depression. how does that translate into the worst being over? we haven't even seen massive speculator foreclosures, waves of builder short sales, big builder bankruptcies or wall street going after mortgage originators. as the anorexic karen carpenter sang, "we've only just begun" (and that's the skinny on another fatcat canard).
After what happened in england, I wouldn't be so sure the market will decline in the way that is hoped for in the various bearcave blogs around the net (this is not one of them).
We could see a quick bottom and just tepid nominal growth (real declines) for the next few years.
Not a soft landing, but not a particularly hard landing either.
Regarding the consumer credit number, the real story (to me) in that number is that the July number was revised from $5.5b to $8.4b. Quite a significant revision, and overlooked by just about everyone I think.
Greenspan's comment is surprising. If past cycles are any clue, the worst is yet to come. I expect the decline to last another two years or more.
BTW, Greenspan did not say people should use ARMs - he said that in recent years many people had saved significant amounts of money on the lower interest payments by using ARMs. A correct observation of fact at the time - and probably still true today.
And who are YOU? Got data to back up an argument? Then present it.
Like it or not, CR is rapidly developing a reputation in the blogosphere as a creative analyst whose efforts are detailed, well-reasoned and not disinclined to give the benefit of the doubt.
Futher, it's the "serious" economists trotted out by CNBC shills and fed to the masses for consumption, all with self-serving interests, who are the real hacks.
According to the mortgage broker blogs, loan standards are tightening quickly and many loans are being turned down on appraisal reviews. I wonder if someone who applies for five loans before either getting a loan or quiting is counted as five applications?
Don't forget about the Democrats possible rise to power. Tech companies BADLY want the Republicans out because they have helped squash the industry since 2001 and have been giving massive contributions to Democratic candidates to do just that.
Democrats IMO will do everything in their power to make the economy tank before Bush gets out of office, forcing through draconian budget cuts in the defense sector and lifting the 97 tax break on Real Estate to help crash values.
We could see the government shutdown again next year, detroying the good feelings from the economies past 2.5 year performance.
"After what happened in england, I wouldn't be so sure the market will decline in the way that is hoped for in the various bearcave blogs around the net (this is not one of them)."
england has been temporarily bailed out by billions in arab oil money, as the big money arabs dump money into the london real estate market. those arabs are not as well received here, so don't look for the same scenario.
once the spec buyers start dumping, we may look more like japan has over 16 of the last 17 years, than england has over the past 2 years.
a huge percentage of those loans are refi's for arms, interest only loans, and option arm loans, not house sales. existing house sale numbers are in the tank. new home sale numbers do not include cancellations, which are thought to be running as high as 30%.
May be Alan Greenspan needs to revise Economics 101 before making predictions such as this.All we can to do is to wait until the housing bear market unfolds before all of us.Ofcourse by then it would be too late and damage would have been done.But that basically brings me to one important point : No other field of study has seen lack
of accountability to such a degree in the high offices as in Economics.People like Greenspan begin their grand experiments in economics by playing with ordinary peoples lives ? And when they can always say they didn't anticipate events right? Can a NASA scientist make an execuse like this? Where are the Inquiry team for Fed's actions during Tech and Housing boom?
It looks like 2006-07 is going to be similiar to 2000-01 in terms of fading US growth and probably stagnation through about end of next year
1.The housing market has bust and prices are stagnating and dropping in some regions.
a.Fixed Res investment has crashed
b.sales are falling
c.starts are falling
2.Industrial production is falling ending a 4 year cyle
Now just that will stagnate the US economy like the dot.com bust did. That is all you need. Risk has caculated 600,000 in construction job losses, but they probably will be closer to 1000000 with a extra 500000 jobs on the aftershocks to other business. So the housing market and its businesses it effects will lose 1.0-1.5 million jobs. The last BLS report showed 15,000 job losses in res construction, I suspect this could be up to 50000-70000 on some reports by Novemeber-December timeframe. This will:
1.Rise unemployment claims: We probably are closer to this than expected, the builders have already began giving letters to its workforce they will not return next spring when the warm season begins. My guess the small trickling from res construction is going to be a open flood this late fall/winter. Other job losses from RE dependent firms probably won't effect those claims to later in the winter/early spring when their demand fully dries up.
2.Dry up government tax money somewhat
3.Give Foreign financers jitters
That leaves us with the remaining 2 questions: What happens to the roaring Commercial building industry and Consumption?
1.The Commercial industry is following its usual lagging path behind Res. Considering its low growth potential for the economy, it would more or less cut growth modestly during the 2008-9 recovery. I don't see a big impact from its decline nor a offsetting potential for the much larger res building industry decline.
2.Consumption is the big big question. During the dot.com bust, people kept on spending despite the hard landing of the dot.coms, this time the consumer will be further challenged by fading potential in MEW's from stagnating and falling prices and wages. If they do cut back consumption and don't spend as much, the economy will go through its first full blown recession in 15 years. If not, we have another 2001 "soft" landing. Foreign investers won't flee. If they do, things could get ugly as multiple recessions strike the economy from higher interest rates further dampening the labor market and tax revenues over possibly a very long time. A tricky situation, but one that isn't a forgone conclusion either way.
"After what happened in england, I wouldn't be so sure the market will decline in the way that is hoped for in the various bearcave blogs around the net"
Also I must point out that new supply in England is SEVERELY restricted by planning regulations. US builders are going to be dumping their huge inventories ASAP to try to beat the wave of foreclosures coming in 2007-2008. The race to the bottom. And let's not forget that builders were making money at 2001 prices, so there's no reason for them to stop as prices keep falling.
AC - remember those tax cuts? Yeh, those. They propped GDP even though they did diddly squat for most households, who went into debt and spent their paper Home equity to keep spending. How do you think the consumer kept spending, I mean, really? Did you miss this???
Guess what? Neither of those are even potentially in play this time around. Yeh, maybe we can cut rates a bit this time, but not to the bone like last time, and even if we did, that liquidity wouldnt have the same effect in a deflating asset bubble. It didnt do sh-t for the NASDAQ, and it wont do it for housing either.
All you need to do is look at the employment vs income growth trend over the past 20 odd years to see the impact of the tax cuts - there is a massive gap in spending power over and above that provided by job growth in the three years after 2000. I know people here hate to admit that tax cuts stimulated growth, but they did. They were stupid, bad for the economy, and ultimately a loadstone around our necks, but they did the four things they were designed to do - 1) make the rich richer, 2) appease the middle class 3) prevent a massive consumer recesssion and 4) keep the party of power in power.
Any hack politician or central banker can inflate an economy with debt, asset bubbles, or tax cuts. It's all a matter of income redistribution, GDP inflation, and borrowing from the future to make today look better.
If hedge funds are driving up the stock market, the Dow, then it may continue up for a time. Investors are driving up housing stocks at a time when news is becoming worse and worse. Greenspan appears to be responsible for some of this "irrational exuberance". I believe that negative news will drive these stocks down again, but probably not right away.
Anyway Greenspan will do anything he can to push the blame away from himself. He really doesn't believe there is much of a bubble, and he really doesn't believe that lending practices allowed by his fed have done much dammage. He is a moron.
Everyone always talks about the Purchase Index as if it were actual purchases. I would expect it to be anything but as lending rules tighten - there might still be lot of 'applications' but few accepted. It would be really interesting to know the rate of rejection vs application volume.
Well that would be just about the shortest housing downturn ever.
This makes me think Greenspan is getting a bit defensive now...
His legacy is at stake.
Mortgage Applications and Purchases will now free fall the next 4 weeks. Thanks Alan!!!
Maybe people should start buying houses in earnest again.
Just like they should have switched to ARMs when this idiot told them to.
What a hack.
Just like they should have switched to ARMs when this idiot told them to.
No, no, no. Not an idiot --just a lying, cynical, self-serving political hack. He knew exactly what he was doing (and for whom), what he was saying, and who his audience was at all times.
Thanks for that redirection on AG, CR.
The difference is you have a smaller (but devoted!) audience that is attentive (more or less), critical (more or less) and not subject to those astronomical fees.
Let's hope the really important trend is one of declining interest in Mr Wrinkles and coninuing and growing support for your very fine blog.
His comment is accurate if you look at the application index over this year. It has basically flatlined over the short term.
http://photos1.blogger.com/hello/243/2888/640/MBA1092906.jpg
It IS a short sighted, rose colored glasses stupid comment, but it isnt wrong.
Hmm... how about looking at his previous calls?
Fleck on Greenspan
On the 1973 recession... I'd like to start off with a quote from Jan. 7, 1973. "It is very rare that you can be unqualifiedly bullish as you can be now," Greenspan commented to the New York Times when he was president of Townsend Greenspan. That was two days after the 1973 stock market peak, when the market was on its way to declining 50 percent over two years, and we endured the worst recession since the Great Depression.
I found this quote over on Ben's blog very illuminating:
Private bankers warned Federal Reserve Chairman Alan Greenspan and governors in December 2002 that consumers were taking on too much debt and that the boom in housing prices was unsustainable, Fed documents made public recently by the Financial Markets Center showed.
STLtoday - http://www.stltoday.com/stltoday/business/stories.nsf/0/CE5967B8B067D4C6862571FF0008FB62 - Not Found
Blood covered hands anyone?
Of course whats stalling the housing market is the size of household debt relative to after tax income. The ratio of this debt to income has been rising rapidly every quarter through the second quarter of this year. The housing market will not recover until this ratio falls to pre-bubble levels. Its currently at 130% and was 94% in the second quarter of 2000 and 88% in the second quarter of 1995, so it has a loooong way to fall. AG is such a turd.
While the crash only took place six months ago, I am convinced we have now passed through the worst and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.
Really enjoy your blog. Found it today as I was searching for quotes that Bernanke and Greenspan made regarding the housing market this week. You are now my economic eyes on the real estate market.
HA HA HA HA!!!
Didn't know Alan was starting his career as a comic already....
with a continued negative savings rate and ridiculous debt to income levels where does Alan think support for current prices is going to come from? i for one don't see where the plethora of buyers are going to emerge from in the spring when the inventory hits the streets.
Greenspan: "worst may well be over"
I dont think so!
I used to have a little respect for this guy.
This sounds like the time he said that Adjustable loans were good, just when loan rates started to rise.
This guy is smart. There is absolutely no way he believes that the worst may be over.
O.K., maybe theres a 5% chance its over.
After hearing this non-sense comment for Greenspan, I lost all of my respect for him. After all he has been a corrupt individual who was at the highest economical position in this country.
Heaven help us. Well, not all of us, only those who are in debt up to their eye-balls.
Reading the comments one might begin to worry about who you're appealing to in your writings..
But type on..
Every time AG speaks, my dogs drags himself across the carpet. Coincidence, I think not.
Greenspan is my enemy, and the enemy of the middle class of America.
He's a friend of upper middle and above class and most of Republican party, though. Nice to have friends, Alan!
Dear CR
Looks like folks are taking on less debt. Consumer credit rose at an annual rate of 2.6% in August.
However, total consumer debt (excluding mortgages) rose to an all-time high of $2.35 trillion.
Revolving credit grew by $2.97 billion, to $846 billion at a 4.23% annual rate in August.
As consumers back off from MEW and into credit cards, what kind of economic growth will be sustained.
See FRB: G.19 Release--Consumer Credit--November 6, 2009
Best regards,
Also this is debt at 10-14% a interest rate rather than at 6-7%.
Damn, if only I could work a spreadsheet like you I could graph the total debt burden for each of those!
Anyway, have a good day!
Touche,
On the general topic of taxes:
The tax code has propped up values for decades with the interest deduction. Now, with the 2/5 year exclusion, there's a much larger built-in inflator to principal residence values. That tax law probably contributed to the house flipping we saw up until recently.
All tax laws fall into the "Law of Unintended Consequences".
I doubt if either of these laws will ever disappear. There's too much fallout.
we are in the very beginning of the first national housing downturn since the great depression. how does that translate into the worst being over? we haven't even seen massive speculator foreclosures, waves of builder short sales, big builder bankruptcies or wall street going after mortgage originators. as the anorexic karen carpenter sang, "we've only just begun" (and that's the skinny on another fatcat canard).
After what happened in england, I wouldn't be so sure the market will decline in the way that is hoped for in the various bearcave blogs around the net (this is not one of them).
We could see a quick bottom and just tepid nominal growth (real declines) for the next few years.
Not a soft landing, but not a particularly hard landing either.
Regarding the consumer credit number, the real story (to me) in that number is that the July number was revised from $5.5b to $8.4b. Quite a significant revision, and overlooked by just about everyone I think.
Greenspan's comment is surprising. If past cycles are any clue, the worst is yet to come. I expect the decline to last another two years or more.
BTW, Greenspan did not say people should use ARMs - he said that in recent years many people had saved significant amounts of money on the lower interest payments by using ARMs. A correct observation of fact at the time - and probably still true today.
Buddy ...
And who are YOU? Got data to back up an argument? Then present it.
Like it or not, CR is rapidly developing a reputation in the blogosphere as a creative analyst whose efforts are detailed, well-reasoned and not disinclined to give the benefit of the doubt.
Futher, it's the "serious" economists trotted out by CNBC shills and fed to the masses for consumption, all with self-serving interests, who are the real hacks.
Whew......I thought we were in for real economic trouble. Thanks, Alan, for easing my mind.
Calculated Risk is the best macroeconmic blog out there.
Clear of mind and always pointing to the most relevant data of the day.
Well done.
According to the mortgage broker blogs, loan standards are tightening quickly and many loans are being turned down on appraisal reviews. I wonder if someone who applies for five loans before either getting a loan or quiting is counted as five applications?
Don't forget about the Democrats possible rise to power. Tech companies BADLY want the Republicans out because they have helped squash the industry since 2001 and have been giving massive contributions to Democratic candidates to do just that.
Democrats IMO will do everything in their power to make the economy tank before Bush gets out of office, forcing through draconian budget cuts in the defense sector and lifting the 97 tax break on Real Estate to help crash values.
We could see the government shutdown again next year, detroying the good feelings from the economies past 2.5 year performance.
"After what happened in england, I wouldn't be so sure the market will decline in the way that is hoped for in the various bearcave blogs around the net (this is not one of them)."
england has been temporarily bailed out by billions in arab oil money, as the big money arabs dump money into the london real estate market. those arabs are not as well received here, so don't look for the same scenario.
once the spec buyers start dumping, we may look more like japan has over 16 of the last 17 years, than england has over the past 2 years.
But isn't it a fact that mortgage applications were up 11.5% last week compared to the week before? At least the MBA says so.
At least that doesn't seem to suggest that housing is still in a free fall.
May have been just a statistical fluke, of course, so time will tell.
frank J. Johnson,
a huge percentage of those loans are refi's for arms, interest only loans, and option arm loans, not house sales. existing house sale numbers are in the tank. new home sale numbers do not include cancellations, which are thought to be running as high as 30%.
CR my man! Careful what you say for you have the power to move real estate markets.
May be Alan Greenspan needs to revise Economics 101 before making predictions such as this.All we can to do is to wait until the housing bear market unfolds before all of us.Ofcourse by then it would be too late and damage would have been done.But that basically brings me to one important point : No other field of study has seen lack
of accountability to such a degree in the high offices as in Economics.People like Greenspan begin their grand experiments in economics by playing with ordinary peoples lives ? And when they can always say they didn't anticipate events right? Can a NASA scientist make an execuse like this? Where are the Inquiry team for Fed's actions during Tech and Housing boom?
It looks like 2006-07 is going to be similiar to 2000-01 in terms of fading US growth and probably stagnation through about end of next year
1.The housing market has bust and prices are stagnating and dropping in some regions.
a.Fixed Res investment has crashed
b.sales are falling
c.starts are falling
2.Industrial production is falling ending a 4 year cyle
Now just that will stagnate the US economy like the dot.com bust did. That is all you need. Risk has caculated 600,000 in construction job losses, but they probably will be closer to 1000000 with a extra 500000 jobs on the aftershocks to other business. So the housing market and its businesses it effects will lose 1.0-1.5 million jobs. The last BLS report showed 15,000 job losses in res construction, I suspect this could be up to 50000-70000 on some reports by Novemeber-December timeframe. This will:
1.Rise unemployment claims: We probably are closer to this than expected, the builders have already began giving letters to its workforce they will not return next spring when the warm season begins. My guess the small trickling from res construction is going to be a open flood this late fall/winter. Other job losses from RE dependent firms probably won't effect those claims to later in the winter/early spring when their demand fully dries up.
2.Dry up government tax money somewhat
3.Give Foreign financers jitters
That leaves us with the remaining 2 questions: What happens to the roaring Commercial building industry and Consumption?
1.The Commercial industry is following its usual lagging path behind Res. Considering its low growth potential for the economy, it would more or less cut growth modestly during the 2008-9 recovery. I don't see a big impact from its decline nor a offsetting potential for the much larger res building industry decline.
2.Consumption is the big big question. During the dot.com bust, people kept on spending despite the hard landing of the dot.coms, this time the consumer will be further challenged by fading potential in MEW's from stagnating and falling prices and wages. If they do cut back consumption and don't spend as much, the economy will go through its first full blown recession in 15 years. If not, we have another 2001 "soft" landing. Foreign investers won't flee. If they do, things could get ugly as multiple recessions strike the economy from higher interest rates further dampening the labor market and tax revenues over possibly a very long time. A tricky situation, but one that isn't a forgone conclusion either way.
"After what happened in england, I wouldn't be so sure the market will decline in the way that is hoped for in the various bearcave blogs around the net"
Also I must point out that new supply in England is SEVERELY restricted by planning regulations. US builders are going to be dumping their huge inventories ASAP to try to beat the wave of foreclosures coming in 2007-2008. The race to the bottom. And let's not forget that builders were making money at 2001 prices, so there's no reason for them to stop as prices keep falling.
AC - remember those tax cuts? Yeh, those. They propped GDP even though they did diddly squat for most households, who went into debt and spent their paper Home equity to keep spending. How do you think the consumer kept spending, I mean, really? Did you miss this???
Guess what? Neither of those are even potentially in play this time around. Yeh, maybe we can cut rates a bit this time, but not to the bone like last time, and even if we did, that liquidity wouldnt have the same effect in a deflating asset bubble. It didnt do sh-t for the NASDAQ, and it wont do it for housing either.
All you need to do is look at the employment vs income growth trend over the past 20 odd years to see the impact of the tax cuts - there is a massive gap in spending power over and above that provided by job growth in the three years after 2000. I know people here hate to admit that tax cuts stimulated growth, but they did. They were stupid, bad for the economy, and ultimately a loadstone around our necks, but they did the four things they were designed to do - 1) make the rich richer, 2) appease the middle class 3) prevent a massive consumer recesssion and 4) keep the party of power in power.
Any hack politician or central banker can inflate an economy with debt, asset bubbles, or tax cuts. It's all a matter of income redistribution, GDP inflation, and borrowing from the future to make today look better.
But look where it has left us...
If hedge funds are driving up the stock market, the Dow, then it may continue up for a time. Investors are driving up housing stocks at a time when news is becoming worse and worse. Greenspan appears to be responsible for some of this "irrational exuberance". I believe that negative news will drive these stocks down again, but probably not right away.
Anyway Greenspan will do anything he can to push the blame away from himself. He really doesn't believe there is much of a bubble, and he really doesn't believe that lending practices allowed by his fed have done much dammage. He is a moron.
Everyone always talks about the Purchase Index as if it were actual purchases. I would expect it to be anything but as lending rules tighten - there might still be lot of 'applications' but few accepted. It would be really interesting to know the rate of rejection vs application volume.