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Even as the housing crisis hit, some in Congress continued to support the failing Fannie Mae and Freddie Mac and opposed new rules to rein in runaway...View Enlarged Image
This is the fourth of five parts of a Monday series excerpting Thomas Sowell's latest book, "The Housing Boom and Bust."
IBD Exclusive Series:Thomas Sowell on The Politics of the Housing Boom
Federal Reserve Chairman Alan Greenspan was the best-known public figure to issue warnings on the housing boom.
His warnings, like those of the secretary of the treasury and the head of the Federal Deposit Insurance Corp., were delivered directly to Congress, while testifying there. Greenspan over the years moved from expressions of mild concern to a more dire view of the situation.
In 2005, Greenspan testified: "Although a bubbling in home prices for the nation as a whole does not appear likely, there do appear to be at a minimum signs of froth in some local markets where home prices seem to have risen to unsustainable levels."
Greenspan did note "the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages" as "developments of particular concern." But he added:
"Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macro-economic implications."
Although Chairman Greenspan at this point seemed not to expect major problems from the housing booms in various localities around the country, he was already apprehensive about the longer-run consequences of the expansion of Fannie Mae and Freddie Mac.
"If they continue to grow, continue to have the low capital that they have," he said, then "they potentially create ever growing potential systemic risks down the road."
There was, in his judgment, "no risk now at the moment," so there was time "to do something to fend off problems, which in my judgment seem almost inevitable as we look forward into the remainder of this decade." He opposed "enabling these institutions to increase in size," and added:
We are placing the total financial system of the future at a substantial risk. Fortunately, at this stage, the risk is, the best I can judge, virtually negligible. I don't believe that will be the case if we continue to expand in this system.
By 2007, however, after Greenspan was no longer chairman of the Federal Reserve System, and after housing prices had begun to fall, his concerns were heightened. He told the Financial Times of London that turmoil in the financial markets was "an accident waiting to happen."
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Posted By: stockman(80) on 12/6/2009 | 12:26 PM ET
C400Pilot(60) the follwoing quote was taken from Bush's 2002 speech to the White House Conference on Increasing Minority Homeownership - "I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families." It is clear that standards were being reduced to meet this goal. Please read the speech.
Posted By: C400Pilot(60) on 12/5/2009 | 2:47 PM ET
Stockman, the ownership society proposed by Bush was primarily targeting those who could afford their mortgages by appropriate changes to the tax code and a strong economy. If you'd read the previous three articles, you'd see this fiasco took a couple decades to unfold. (Unfolding in 2004?) You also assume their "not give and take" in Congress (that's what "politics" is, and you also ignore the power of the committees. In sum, we're not the dictatorship of either a president or a politbureau.
Posted By: stockman(80) on 12/5/2009 | 11:07 AM ET
I find it amazing that Dodd and Frank are singled out with quotes dating back to 2002. Who was in charge of the Oval Office and controlled the Senate and Congress in 2002 until 2006 when this crisis was unfolding? Who touted the "ownership society" in campaign speeches in 2004, as the bubble was reaching a bursting point? For those on the right that shun the truth and accountability -- the answers to questions one and two respectively - Republicans and George Bush.
Posted By: stockman(80) on 12/5/2009 | 11:07 AM ET
I find it amazing that Dodd and Frank are singled out with quotes dating back to 2002. Who was in charge of the Oval Office and controlled the Senate and Congress in 2002 until 2006 when this crisis was unfolding? Who touted the "ownership society" in campaign speeches in 2004, as the bubble was reaching a bursting point? For those on the right that shun the truth and accountability -- the answers to questions one and two respectively - Republicans and George Bush.
Posted By: stockman(80) on 12/5/2009 | 11:07 AM ET
I find it amazing that Dodd and Frank are singled out with quotes dating back to 2002. Who was in charge of the Oval Office and controlled the Senate and Congress in 2002 until 2006 when this crisis was unfolding? Who touted the "ownership society" in campaign speeches in 2004, as the bubble was reaching a bursting point? For those on the right that shun the truth and accountability -- the answers to questions one and two respectively - Republicans and George Bush.
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