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Books & Movies

[I.O.U.S.A.] Sooner Or Later It’s Real Money

August 21, 2008 | 10:41 pm |

A must see movie is coming out this weekend: I.O.U.S.A

To view more preview clips.

From the press release

Throughout history, the American government has found it nearly impossible to spend only what has been raised through taxes. Wielding candid interviews with both average American taxpayers and government officials, Sundance veteran Patrick Creadon (Wordplay) helps demystify the nation’s financial practices and policies. The film follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America’s unsustainable fiscal policies to its citizens.

As we slog through the current credit condition, its really an opportunity to reconsider the over reliance of debt as a way for government (and ourselves) to avoid making hard choices.

In fact, there is very little wiggle room with efforts for debt reduction on a federal level largely because of entitlements. Add to that a GSE bailout that may well exceed $100M and counting.

One for two

The Congressional Budget Office found that “typical estimates of the economic [deadweight] cost of a dollar of tax revenue range from 20 cents to 60 cents over and above the revenue raised.”3 Studies by Harvard’s Martin Feldstein have found that deadweight losses are even larger. He noted that “the deadweight burden caused by incremental taxation … may exceed one dollar per dollar of revenue raised, making the cost of incremental governmental spending more than two dollars for each dollar of government spending.”


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[This Just In] There IS Meaningful Housing News On Comedy Central

July 22, 2008 | 9:04 pm |

You gotta love Jon Stewart of the Daily Show. He is making news more accessible to young people (my kids and, of course, me) by delivering it as entertainment. He’s had some interesting guests on the show to cover the housing market. The housing market situation is so ridiculous, it is a natural fit on this kind of show.

John Stewart: People would come in and say “I don”t have good credit, or a job, and my car has been repossessed and I’d like a house, what do you think?

Lender: Ok

Last night I saw the interview with Richard Bitner who is humping his book, Confessions of a Subprime Lender. I was in a BN a few weeks ago and almost picked it up. I had read the interesting review in Daniel McGuinn’s Newsweek Resident Expert column in the spring but was already OD’ed from subprime talk.

But after hearing the interview last night, and the fact that he speaks with such clarity, I would imagine it’s a fun read. He was a wholesale lender, providing mortgage money to mortgage brokers…and guess what?…underwriting standards eroded.

Looks like another reason to delay reading War & Peace.

See the clip [it starts at 15:00]


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[GSE Reminder] Hey, There Are No Guarantees

July 21, 2008 | 1:58 pm | |

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE). Yet they have shareholders and are profit driven. They play a critical role in the stability of the US mortgage market (and housing) by promoting liquidity, helping mortgage rates and availability consistent throughout the country.

One of the things that made them have a competitive advantage over others was their inferred backing by the federal government.

In the New Yorker this week, James Surowiecki writes in his column Sponsoring Recklessness

The two companies have long been required to tell investors that their securities are not guaranteed by the federal government. But in the financial markets everyone has always assumed that this demurral was just window-dressing, and everyone, it turns out, was right. Last week, when fears of a possible collapse of the two companies threatened to spark a major financial crisis, the Treasury Department and the Federal Reserve quickly came up with a rescue package. What had been an implicit guarantee became an explicit one

Fannie was privatized in 1968 so president Johnson could move the debt off the federal books to help sell the Vietnam War budget, not to help the mortgage market.

Help to the consumer in terms of their impact on keeping low mortgage rates may be exagerated.

A paper by the economist Wayne Passmore, of the Federal Reserve, suggests that in fact Fannie and Freddie have only a small effect on the interest rates that homeowners pay, saving them less than one-tenth of a percentage point.

The GSE self-preservation mechanism has been aggressive lobbying using former high placed government officials, very effective in enabling them to grow to $5 trillion in mortgage debt. A blip on the radar could cause more damage than Congress is able to burden the taxpayers with.

More than $10 billion in losses in the past two quarters, the GSEs (and FHA) are looking for more money to capitalize to help bailout the housing market at Congress’ urging.

Holden Lewis over at Bankrate wrote a great post on this last week called The GSEs and moral hazard.

Daniel Gross, my friend over at Slate and Newsweek, makes a better argument for the help GSEs provide to the taxpayer/homeowner suggesting that a bailout of the GSEs would actually be a bargain.

I guess I have a hard time accepting that anything the federal government would do would be a bargain and the long term concept of nationalization of the GSEs would be cost effective, but hey, I don’t have to refinance my mortgage.


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Even Storied Book Publishers Didn’t See The Pressure

June 26, 2008 | 1:54 pm | |

My business partner John Cicero, of Miller Cicero, our commercial appraisal firm ran across a pretty interesting book released by McGraw-Hill last year, a well respected publisher.

Here’s an excerpt from the book: The Complete Guide to Financing Real Estate Developments (Hardcover) by Ira Nachem (2007, McGraw-Hill, New York), List price $79.96.

Since appraisers want to continue to receive assignments, they generally have a desire to satisfy you, their client. You sometimes can play on that desire and get the appraiser to produce a report with values a bit higher (or lower) than he otherwise would report….If you want to make sure that the appraiser is not undervaluing the property, you should tactfully indicate your concern up front…

In other words, its important to pressure the appraiser – in fact, it is part of a strategy to be a successful developer. Of course with the changing credit market landscape, I would think the lessons learned from this book are now limited. Still, it is quite shocking to me how cavalier this quote is and how commonplace it probably was.

For more details, take a look at John’s post over at my other blog Soapbox.


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[Bailing Out The Housing Ship] Pirate Economics And Democracy

May 22, 2008 | 11:07 am | |

Pirates of several hundred years ago have been getting a lot of attention of late via the 3 Johnny Depp/Disney movies.

Well, apparently pirates formed some of the first petri dishes of modern economics and democracy according to a new book “The Invisible Hook: The Hidden Economics of Pirates” written by an economics professor at George Mason (hat tip to Freakonomics).

The book caught me eye, arrgh, as someone who fancies the likes of (sorry, I digress) Talk Like A Pirate Day each September 19th as well as my friend Chris Miles’ site TalkLikeAPirateDay.com. The “founders of International Talk Like a Pirate Day acknowledge that there is, in people who love to say “Aargh,” a yearning for a certain kind of freedom.”

Aargh!

Presidential candidates, take note: Long before they made their way into the workings of modern government, the democratic tenets we hold so dear were used to great effect on pirate ships. Checks and balances. Social insurance. Freedom of expression.

The pirates who roamed the seas in the late 17th and early 18th centuries developed a floating civilization that, in terms of political philosophy, was well ahead of its time. The notion of checks and balances, in which each branch of government limits the other’s power, emerged in England in the Glorious Revolution of 1688. But by the 1670s, and likely before, pirates were developing democratic charters, establishing balance of power on their ships, and developing a nascent form of worker’s compensation: A lost limb entitled one to payment from the booty, more or less depending on whether it was a right arm, a left arm, or a leg.

Aside from walking the plank analogies, what the heck does this have to do with housing?

I’m getting to that.

If you think about it, one of the arguments against anything in the form of a bailout, is that we let the free markets decide (aka “Aargh”). Good honest hard working people should not be asked to foot the bill for other’s greed. I agree.

But all the “help” done so far is explicitly presented as anything but a “bailout” which is not true. That’s because any “fix” is essentially a bailout.

In a pure sense, the “anti-bailout” sentiment is based on the idea that people took advantage of the lending system to their own personal gain at other’s expense so they should suffer their free market fate.

If people broke laws, they should be punished. But what if they didn’t and gamed the system to its full advantage because there were no regulations or significant repercussions?

My entry into blogging in 2005 was born out of frustration that people around me were gaming the system “legally” (definitely not ethically) and seemingly nothing could be done about it or no one in government was willing to or understood what the problem was. Until now.

Which brings me to my point.

Free markets don’t work if there aren’t guidelines (remember that quote from Pirates of the Caribbean?). The problem with the lending environment of the past 5 years was the lack of appropriate regulation, oversight and enforcement. There was not a level playing field and risk could be shifted off to unwitting (misinformed, naive or stupid) investors.

In other words, it was a systemic problem.

Yet a business enterprise made up of the violent and lawless was clearly problematic: piracy required common action and mutual trust. And pirates couldn’t rely on a government to set the rules. Some think that “without government, where would we be?” Leeson says. “But what pirates really show is, no, it’s just common sense. You have an incentive to try to create rules to make society get along. And that’s just as important to pirates as it is to anybody else.”

Unless all parties have skin in the game, whether it is lenders, investors, borrowers, appraisers, mortgage brokers, mortgage bankers, investment banks, government, regulators, GSEs, ratings agencies, there is no financial democracy and we will have another systemic breakdown.

In other words, we need a workable regulatory structure.

The pirates were a lot more innovative than we probably give them credit for – you do need to lose an arm or a leg if you do something wrong.

Aye…

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[Premature Lecture] Agencies Go Full Court Press On Self-reflection

May 20, 2008 | 11:05 am | |


It seems a bit early to start reflecting on the lessons learned from the housing/mortgage problems we face, since, well, we still face them.

Don’t get me wrong.

It is always good to look back over your efforts and evaluate whether anything different could have been done to yield a different result. It is just that this infers closure and it is too early to summarize.

OFHEO – James Lockhart, the director spoke last week at the 44th Annual Conference on Bank Structure and Competition in Chicago (think Auto show, only less metallic paint) on the “Lessons Learned from the Mortgage Market Turmoil.”

He arrived on the scene after the party already begun and despite the criticisms levied towards both him and his agency, I actually think he did well with what powers he has to employ.

Plus, he likes charts “To set my remarks in context, I often like to start with a chart that gives some perspective…” Start with a chart and I am on your side.

Key lessons learned

  • what goes up too far goes down too far. In other words, bubbles burst.
  • mortgage securities are risky and that there is a long list of financial firms that have had problems with those securities, including problems related to model, market, credit, and operational risks. A key lesson from the savings and loan crisis that was ignored was not to lend long and borrow short, as structured investment vehicles (SIVs) did.
  • Another lesson ignored is that in bull markets investors and financial institutions tend to misprice risk, which can result in inadequate capital when markets turn.
  • A new lesson that should be learned is that putting subprime mortgages, which almost by definition need to be worked, into a “brain dead” trust makes no sense.
  • Another lesson is that overreliance on sophisticated, quantitative models promotes a hubris that has frequently caused serious problems at many financial institutions

Lessons learned specific to the GSEs

  • The first is about pro-cyclical behavior during the credit cycle. An important issue for supervisory agencies is how to create incentives for institutions to behave in a less pro-cyclical manner without interfering with their ability to earn reasonable returns on capital.
  • A second lesson from recent experience is the importance of capital. Capital at individual institutions not only reduces their risk of experiencing solvency and funding problems and of contributing to financial market illiquidity, but also helps them avoid the need to retrench in bad times and miss what may be very attractive opportunities in weak markets.
  • Those two lessons provide compelling arguments for a third: legislation needs to be enacted soon that would reform supervision of Fannie Mae and Freddie Mac and, specifically, give a new agency authority to set capital requirements comparable to the authority the bank regulatory agencies possess.

These are important points because the GSEs dwarf other debt and the GSEs have been losing money as of late. Here’s a few charts that may be of interest from his speech:


FDIC – Sheila Bair, FDIC CHairman was speaking in Washington, DC at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another http://www.fdic.gov/news/news/speeches/chairman/spmay1608.html on the same day Lockhart was speaking in Chicago. A full court press of self-reflection. Like Lockhart, Bair has been very outspoken and I believe lucid in her depiction of the problems at hand. To her credit, she has clearly articulated the problem with the mortgage system.

Her salient points are:

  • …things may get worse before they get better. As regulators, we continue to see a lot of distress out there.
  • Data show there could be a second wave of the more traditional credit stress you see in an economic slowdown.
  • Delinquencies are rising for other types of credit, most notably for construction and development lending, but also for commercial loans and consumer debt.
  • The slowdown we’ve seen in the U.S. economy since late last year appears to be directly linked to the housing crisis and the self-reinforcing cycle of defaults and foreclosures, putting more downward pressure on the housing market and leading to yet more defaults and foreclosures.
  • Reform is not happening fast enough
  • She explains HOP loans are NOT a bailout
  • The housing crisis is now a national problem that requires a national solution. It’s no longer confined to states that once had go-go real estate markets.
  • The FDIC has dealt with this kind of crisis before.

Take away

Both OFHEO and FDIC seem to be saying we need to take action now and they were powerless to do anything before this situation evolved into its current form?

It makes me wonder whether any regulatory proposals will do much good. Regulators did not take action or propose safeguards while the problem was building. How can they suddenly have wisdom now? While these recommendations and insight seem prudent but isn’t it kind of late for that?

Speaking of monoliths, here’s Steve Ballmer getting egged in Hungary.


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[Indebtor’s Ball] Subprime Discussion Without The Junk

April 29, 2008 | 9:50 am | | Radio |

Lost a reliable Internet connection at home for the past 3 days so my posting has been non-existent (but I did change a few lightbulbs with my free time)

Back in the day, I loved to read books like Barbarians at the Gate, Den of Thieves and Liars Poker covering the truth and mythology of Wall Street (now I read books like Pontoon). Michael Milken was directly or indirectly connected to many of those stories, as well as the firm he worked for Drexel Birnham Lambert because of the financial vehicle he championed, the fabled junk bonds.

When the subprime crisis first became kitchen table talk last summer, initially there was discussion that it was another “junk bond” crisis. I cringed because junk bonds weren’t bad in and of themselves. The investors that used or purchased them got into trouble, because didn’t appreciate the risks associated with them. Higher returns, equals higher risk. Sounds a lot like subprime market participants doesn’t it?

Andrew Ross Sorkin’s excellent article in the New York Times today called Junk Bonds, Mortgages and Milken addresses this issue:

“The financial crisis we’re in today stems from the invention by Drexel Burnham Lambert of the junk bond,” Martin Lipton, the superlawyer who co-founded Wachtell, Lipton, Rosen & Katz, said derisively at a conference last month. “You can draw a straight line from Drexel Burnham to the financial world today.”

Milken disagrees:

Critics who compare the subprime debacle to the bubble in high-yield, high-risk corporate bonds that Drexel helped inflate two decades ago are “people who don’t understand markets very well,” Mr. Milken said. He suggests that “their rationale is that both types of financial instruments are risky.”

And he says junk bonds, or those rated below investment grade, “have little in common with mispriced subprime mortgages,” which he says are the real culprits.

“Having financed several of America’s largest home builders, I know a few things about the housing industry,” Mr. Milken said. “What happened to housing was not a failure of securitization, but rather a disastrous lowering of underwriting standards and other unfortunate practices.”

Criticizing securitization — the slicing and dicing of debt that he helped popularize — is “like condemning scalpels because a few unqualified surgeons have injured patients,” he said.

With the introduction of new financial instruments, users tend to go overboard at the end of the cycle and then new regulation is introduced that tends to go to far (ie mortgage current underwriting standards will become a self-fulfilling prophecy).

Ultimately what junk Bonds and subprime mortgages really had in common, were the people that used them. They didn’t reflect adequate risk into their pricing. A more pro-active SEC might keep that in check, but then squash innovation.

I need to change some more lightbulbs.


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[GSE Searchlight] Oversight Is So Not Over

April 23, 2008 | 12:35 am |

There is a whole lot of oversight going on these days. OFHEO [Office of Housing Enterprise Oversight] and others are very concerned about the ability of the GSEs to avoid getting into trouble.

I wonder why there was so little oversight before the credit crunch? Was it an…oversight (sorry)?

It’s pretty scary to think that Fannie and Freddie (and HUD) are seen as the saviors of the housing market in the creation of a jumbo conforming mortgage product, expanded portfolio size and a housing market condition that continues to weaken (default rates rise as prices decline). They are already vulnerable.

Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor’s recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer’s money.

Fannie Mae and Freddie Mac are getting a lot more attention from the Treasury Department these days.

Treasury officials have stepped up efforts to strengthen the regulation of Fannie Mae and Freddie Mac, the two largest buyers of home mortgages, pressing key senators to break a legislative stalemate that has lasted for years.

In OFHEOs Report to Congress, it summarizes the concerns quite efficiently:

$5.0 trillion in guaranteed mortgage-backed securities outstanding and mortgage investments. Their market share of total mortgage originations grew from 37.4 percent in 2006 to 75.6 percent by the fourth quarter of 2007. There is increasing pressure for Fannie Mae and Freddie Mac to do even more to support the mortgage market, which is problematic in absence of GSE reform legislation to strengthen the regulatory process.

As evidenced by the lack of market enthusiasm for the new jumbo conforming mortgage product that was supposed to help the housing market (allowing some homeowners to refi their way out of trouble – which can’t be good for FNMA’s portfolio). And OFHEO is just wrapping up actions against former FNMA executives who manipulated earnings to enhance their bonus income.

It doesn’t seem reasonable to place all of our hopes for a solution on the GSEs.

Consider oversight in the classroom: How students see their classroom today.


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When I’m 64? How About Now?

April 7, 2008 | 10:44 am | |

I like to read Bill Gross’ column every month (and podcast) and have mentioned it here on more than one occasion. He is a smart man and the zen-god of the bond market via his firm PIMCO. He is not without his critics and his columns have a lot of extra style stuff inserted that blur their clarity, but they are still worth reading. And the Beatles, of course, are still worth listening to.

This month Gross touches on asset-backed lending in his column, When I’m Sixty-Four, a tried and true (sort of) form of mortgage lending where the lender actually understands who they are lending too, something lost in the recent surge in securitization run amok. Of course, keep in mind that JP Morgan was a robber baron.

I’ve had a famous picture of J.P. Morgan on my office wall for 25 years. Even now, the old man seems to be staring at my back and taunting me with his famous quote written just below his vest with pocket watch in full view: “Lending is not based primarily on money or property. No sir, the first thing is character.”

If there is not swift action at a Federal level, we’ll likely slip into a significant economic downturn.

In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities. As a result, the deflating private market’s balance sheet is being re-nationalized in some cases with increased regulation, in others with outright guarantees and agency lending. Ultimately government programs which support private credit market assets may be required in order to prevent an asset deflation of significant proportions. Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices.

Think of the recent Federal Reserve rate cuts as a bailout.

Politicians – especially those on the Republican side of the aisle – are adamant about not using taxpayers’ funds to bailout Wall Street or housing speculators, or whoever the current devil may be. The public seems to nod in agreement while at the same time not noticing that their watch is being lifted or their pocket being picked. Let’s see: Twelve months ago the yield on your money market fund was 5%+ but your next statement will probably feature something closer to 2%. Did your money market fund (which in aggregate approaches 3 trillion dollars) experience any capital gains in the process? Absolutely not. So it looks like your (the taxpayer’s) contribution to the bailout of banks, or Florida condominium speculators can at least be quantified: 3% foregone interest per year on whatever you own

Now think about how free markets work. How can they perform freely if no effective standards or guidelines are in place? It’s not about more regulation, it is really about effective regulation and removal of distractions or those that provide a false sense of security.

You only need to look at the state of the current credit markets. Investors do not trust the packages being sold, and that is why we are in the mess we are in.


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[Client #9] You Don’t Get What You Pay Borrow For

March 11, 2008 | 9:52 am | |

Can there be a bigger story than the housing/credit market/economy/weak dollar/recession right now? Client #9, George Fox…good grief.

Which begs the question: Do you get what you pay for?

I have been struck by all the recent solutions to the financial crises that we have slipped into, whose severity, by most accounts, caught government officials and financial institutions mostly unaware. Of course my favorite bubble bloggers have been saying so for quite a while, including The Housing Bubble Blog, Bubble Meter and Housing Doom. In fact, they have been screaming about it. Their perspective has largely been from the stand point of the absurdity or the void of logic of high prices paid and the greed. Not much dialog about the cause until recently, because few actually saw it, let alone understood it.

In retrospect, it was never about high housing prices alone, it was mainly about easy credit that enabled the purchase of property at seemingly any price. cart before the horse

The naming convention for the housing boom/bubble/bust should have been based on “mortgage” or “credit” rather than “housing.”

Anyway you slice it, we are in the middle of a real financial crises and I am hopeful that the recent stimulus package does not convince the powers that be that the problem is solved. The stimulus package is simply a baby step, but at least it is in the right direction. It looks like more reforms are being debated and discussed and (surprise, surprise) all deal with mortgages. A bailout is not on the table, nor would it be a solution, or fair to homeowners who were not greedy or did not take responsibility for what they were signing.

While ultimately, markets need to find their own balance and it is good for home prices to decline as part of the cycle, the exposure to our financial system based on ill conceived mortgage lending needs to be fixed. It really is scary how exposed our economy is on this one.

Innovative solutions will be next up on the Congressional agenda because rate cuts don’t ahem cut it.

With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly.

As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies.

Some legislative actions in the works right now:

I am actually impressed by the creativity of solutions being proposed but the details make or break their effectiveness. Right now we have sort of the inverse of the period which saw immense creativity of mortgage packages during the housing (mortgage) boom. Hopefully the solutions are not as complicated as the problems that caused this situation. I don’t need to find another tranch loaded with problems.

For some, this financial crises will teach many that you actually don’t get what you pay for and you don’t get what you borrowed either.

To digress…On the Beatles’ Revolution #9 single, parts of the song, when played backwards with a turntable, sound like “turn me on dead man.”

Coincidence?

Ok, back to work.


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[Booked] 2008 Swanepoel Real Estate Trends Report

February 16, 2008 | 11:09 pm | Public |

I was attending a real estate awards breakfast last week and the above chart was used in the visual presentation, which stood out among the others used. I thought was pretty cool. The chart turned out to be Stefan Swanepoel’s chart from his new book on real estate trends for 2008. He quoted me in last year’s version and I found his efforts to be insightful. This year’s version is just as good:

According to the report, real estate professionals “will have to readjust their DNA and understand that transformation has become mandatory if they wish to be part of the winning side of the industry’s constant evolution. The involvement of the Department of Justice (DOJ), the changing borders and boundaries of MLS and identity theft are three of the concerns covered in the 2008 edition. “Smart brokers, managers, association leaders and team leaders will use 2007 to restructure their businesses, gain the additional knowledge and skill set so as to maximize every opportunity that will ignite success and profitability,” Swanepoel emphasizes.

He cites Matrix among his list of must read blogs. Real Estate Tomato lists Stephan’s blog favorites for us.



Legacy Turbulence: Irrational Book Advances

September 25, 2007 | 10:01 am | |

Hey I admit it, I bought the former Fed Chair Greenspan’s new book The Age of Turbulence on Monday, the first day it was available. Of course I bought as a birthday present for me, not to be opened for a few weeks when my maturity age of 17 clashes in screaming technicolor with my actual age, even louder than a rate cut. We have strict rules around my house. If I buy something under the pretense of it being a birthday present, its not to be opened until then.

Well its been a week and I have had some time to reflect on the events associated with the new book, before I have even read it.

What thought first comes to mind? Incredible timing. Who says you can’t time a market?

Announce a book the day before one of the most anticipated FOMC meetings in recent memory, support your successor, admit some flaws but no regrets, criticize the administration as well as both the Democrats and Republicans in Congress, acknowledge a housing market problem but keep your reputation in tact. Hey, the $8M advance needs to be earned.

All this gets you a number one ranking on Amazon.com, ahead of Water for Elephants, Playing for Pizza and Math Doesn’t Suck: How to Survive Middle-School Math Without Losing Your Mind or Breaking a Nail.

Since I admired Greenspan during his tenure, I can’t tell if the insight being provided during the media blitz is helpful in understanding how we got here, or merely spin.

Caroline Baum, one of my favorite columnists on Bloomberg sums it up nicely:

Greenspan, who reportedly received an advance of more than $8 million for this memoir, seems eager to stave off criticism for keeping short-term rates too low for too long in 2003 and 2004, stoking a housing bubble in the process. He was aware of reduced credit standards on subprime mortgage loans, he says, “but I believed then, as now, that the benefits of broadened home ownership are worth the risk.'”

That view is being challenged as the housing bubble deflates, delinquencies and foreclosures rise and financial losses mount. The reader is left wondering if a more introspective Greenspan, and one less interested in shaping his legacy, wouldn’t have found a regret or two along the way.

With a possible recession looming and housing on the downslide (a word?), I am experiencing my own personal turbulence and have officially added it to my economic vocabulary in addition to “contained”, “frothy” and “irrational exuberance”.


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