Zip it, Greenspan

Former Federal Reserve Chairman Alan Greenspan is flogging his new book that takes a sharp look at the Bush Administration. In it, he criticizes President Bush for not responsibly handling national spending and racking up big budget deficits.

Mr. Greenspan would have us forget the role he played in enabling the disastrous Bush economic agenda. In the first days after the 2001 inauguration, Mr. Greenspan warned of a danger that the budget surplus could actually become too big and drag down the economy. And thus, Mr. Greenspan gave the green light to Bush's tax cuts.

More importantly, Mr. Greenspan, or “Mr. Bubble” as we call him in the markets, is partly responsible for the mess that many homeowners find themselves in. He gave explicit endorsement to Adjustable Rate Mortgages (ARMs) and the other crackpot financing that drove the housing bubble to new heights and enabled many Americans to buy more home than they could afford.

From a USA Today story published February 2, 2004:

WASHINGTON — Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.

[snip]

While borrowers can refinance fixed-rate mortgages, Greenspan said homeowners were paying as much as 0.5 to 1.2 percentage points for that right and the protection against a potential rate rise, which could increase annual after-tax payments by several thousand dollars.

He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said.

You can go read the whole thing yourself here: http://www.usatoday.com/money/economy/fed/2004-02-23-greenspan-debt_x.h

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