Dear Alan Greenspan:
Sigh. This is my second letter to you. Much like Santa Claus when I asked for magic mushrooms and Mayor Fenty when I requested the streets be plowed after snowstorms, you did not answer my first letter. I’m not hopeful you will answer this one either.
I know you are very busy with your retirement, alternating between sipping your Mai Tai and making blanket idiotic statements that get picked up by the media, but really, stop. You are no longer the Chairman of the Federal Reserve, so what you say doesn’t matter. Well, I would like to think it doesn’t matter. Unfortunately, stupid people hang on your every word, believing it to be it to be gospel. If you predict a housing market crash, it will surely happen because people “believe” it will happen, and they react as such, creating the very market conditions you warned of, and then you have mayhem.
Frankly, the fact that you even speak at all is so totally unfathomable to me. You created this mess we’re all living out right now. You consistently reduced the Federal Funds rate which, through a whole series of economic events, affected the Bond Market in turn lowering mortgage rates. I know, you were just trying to make sure our economy didn’t tank after September 11th. Understandable. Respectable. But, going from 3% to 1% by June 25, 2003, and leaving it there for a full year? At how many dozens of Fed Meetings did you fuck with the rate? Too many.
See, again, we have this guiding principle about the U.S. Economy: It is self-correcting. It doesn’t need a whole lot of help. Here is where I would draw for you, a supply and demand diagram with the Price and Quantity coordinates. We’d compare guns to butter, or I would dumb it down for you to houses and prices, and explain that when you make money cheaper to borrow, you suddenly put more people in the market to buy a house because they think they can finally afford the American Dream. Too much money chasing too few goods and services makes prices increase. Inflation. Remember? You entice people in the market who don’t want to be there yet, robbing future demand. You also lure speculators (a.k.a. investors, scumballs) into the market. People saw the housing industry like they did bootlegging, day trading and junk bonds – a place to make quick and easy cash. Except everyone viewed housing to contain very little risk because they were speculating on something with an underlying asset – the actual home in which someone can live. This is “artificial demand.” People aren’t there because they need the house, they are in the market because you have made the house easier (read: cheaper) to get and instead of living there, they are purchasing it with other plans in mind.
If you are following along on our x-y axis, you will see that you have more demand, and then supply goes down. Then, prices go up to meet that demand. As we all know, home prices went up. And up. And up. You lowered the Federal Funds rate to an unprecendented 1% and kept it there for over a year. Why? My only explanation is because you are a fucking idiot. The other explanation is senility but I prefer the “fucking idiot” scenario.
Now, let’s look at what happened out here in the real world, away from the corner offices, leather chairs and ivory backscratchers of your world.
Holly and Harry Homeowner went to buy a house. They stretched and saved, and ended up still not being able to finance a home because prices had slipped just beyond their reach. But they believed everyone who said they should go buy a house and they would make a killing when they sold it. So along comes the lender with “creative financing” and sold them some “no money down / no doc” loan they call an ARM, where the rate adjusts. Irony lives and dies in the fact that they call it an arm, because once the rate changes it costs you an arm and the proverbial leg to get out of the mess you’ve created. So the prices start going down on homes, people start foreclosing on loans, and you have things like this happening.
Again, I would like to remind you: self-correcting economy. Your intent in keeping the economy afloat was a wise foresight on your part. But, you should have stopped with the rate reductions at some point earlier than 2003. You should have also increased the rates at a much faster pace than you did. Since you are so good at shooting your mouth off, you should have also warned all those homebuyers: If they can’t afford a fixed rate mortgage, then they can’t afford that particular house. Of course, you didn’t though. You’re saying it now, but back then, you were happy that the homebuilding industry was keeping the economy afloat and that you looked like a hero. You can’t give stupid people a bunch of money and not advise them of some basic financial rules because everyone else has to suffer the fallout when those people mismanage their money. I say it at work all the time: You can’t walk into a room and say “This is fucked up, fix it,” but not guide people in exactly HOW to fix it. If they knew, it wouldn’t be fucked up in the first place, right?
Read this if you want to vomit along with me. (“High housing prices are more of a problem than loans” – whose fault is that now? Asshole.)
No love for you,
P.S. Putting names and faces to all this foreclosure does nothing for me. I’ve been reading these articles for weeks now. I don’t feel sorry for these people. They are idiots. Just because someone hands you really cheap money, doesn’t mean you should take it. Again, if you can’t afford a fixed rate mortgage, YOU CAN’T AFFORD THAT HOUSE. It was the buyer’s responsibility to determine that their job as the Assistant Manager at CVS wasn’t going to have a 30% pay increase occur at the same time the “adjustable” portion of their mortgage kicked in. Before one makes a multi-hundred thousand dollar purchase, they need to get some financial advice from someone other than their loan officer who has a vested interested in closing their loan and making a commission. Someone who will tell them, to their face, that they cannot afford this particular home.