He did everything contrary to what worked before. He kept the economy running great, everyone that wanted to work was, people could afford anything that they needed or wanted, and then he said he was retiring. Then, he didnt! And he stayed 3 years, raising interest rates, which caused everything to become unaffordable, because everyone lost their jobs and couldnt afford to buy anything, and it was a huge downward spiral!
At the time that he made a speech to encourage refinancing to a variable rate loan, there was more than one type of variable loan. So variable rate did not have the same meaning as the traditional variable rate loan did, as he professed.
Alan Greenspan was the Federal Reserves Chairman from 1987 to 2006. He was in charge of how high and low interest rates were set. He created phenomenally low interest rates that enticed banks to lend after September 11th. As time went on, there seemed to be a housing "problem", but Mr. Greenspan dismissed it as "contained" to certain "hot spots". In the end, Mr. Greenspan failed to see how his loose monetary policies created a bubble, until it was too late and he was out of office.
If you are doing your job correctly everyday, then there should be no mistakes, big or small. Everything is on paper in black and white, so there is no disputing the error.
We all saw it coming and knew that it was inevitable. When Californians were buying homes in Arizona sight unseen over the phone with 100% financing, we all knew we were done. The banks should have never been allowed to make such loans. Someone should have been watching what was going on and put a stop to it.
Alan Greenspan quite clearly overlooked a very serious factor involving the entire situation as a whole. He did not take care in his decision making and made a critical error. To be frank I believe that Alan Greenspan's low interest rate policy after the dot-com bust and the 9/11 attacks in fact sowed the seeds for the current recession and the housing bubble.
Greepspan lowered interest rates below the true 'cost' of money thereby fueling bubbles in the credit markets. This was pointed out time and again by regulators, politicians, economists... even McCain and Bush introduced legislation in 2002 and 2003. As Greenspan's 'cheap money' flooded the equity markets, the banks fattened themselves on fat fees for mortgages and other loans, adding more fuel to the fire of easy credit and unsustainable 'Bubbles'.
Alan Greenspan had 30+ years of private sector economic work experience, prior to entering the Federal Reserve. He served five terms with the Federal Reserve under four different Presidents. During this time, he saw a vast array of economic crisis, both domestic and foreign. Even if we ignore his decades of experience, he wrote his PhD thesis on soaring housing prices and their effect on consumer spending. This is a paper which is reported to anticipate just such a bubble occurring.
It is ridiculous to hold one person responsible for something as complicated as the collapse of the housing bubble. Now matter how much education or training any individual has, getting the big picture is a collaborative effort. It takes many people to put together something worth 8 trillion dollars. Mr. Greenspan is nothing but a public sacrifice to atone for the lack of actions by others.
The main argument for Greenspan being to blame is that he has predicted so much else accurately. Being right 90% of the time does not mean that being wrong the other 10% makes you the reason things go wrong. Nobody is perfect, including Alan Greenspan. And nobody should be held to the standard of perfection when it comes to predicting the future.
Alan Greenspan may have a hand in the economic meltdown that the housing bubble held a huge part in. But there were thousands upon thousands of others that were working in this industry, as well, that likely saw the same unfortunate things he did, yet also did nothing about it.
One cannot blame Alan Greenspan for missing the 8 trillion dollar housing bubble. It was not his job to give out loans, and those are the people who are to blame. The lenders gave out variable rate loans to people they knew would default when the rates went way up. Alan Greenspan wouldn't have overseen such a disaster if the mortgage lenders had not hidden their deceitful ways from the government.
Just because he was an economist doesnt mean ha can predict the future. Besides when times are good NOBODY starts looking for a bubble to burst, they just enjoy it while they can.
While he publicly admitted that there was going to be declines, and that they were going to be greater than most people thought, he is still not incompetent. Not all economists can get a clear picture of what is going to occur, because things change, which can change the direction of finances. So, while he may have not caught on soon enough for most, it was not incompetence that allowed him not to see the large financial bubble around the housing sector.
Fault for the housing bubble crisis does not lie with Alan Greenspan and the Federal Reserve. It is the fault of the Democrats in Congress urging lenders, such as Freddie Mac and Fanny Mae, to offer loans to those who could not pay them back. In the normal market, bankers do not loan money to risky borrowers who either have insufficient assets or credit ratings. However, in the late 90's and the early 2000's, Congress, namely folks like Maxine Waters and Barney Frank, pushed lenders into making risky investments. In an ordinary market, selling loans and mortgages is normal and not risky, because the borrowers had been properly vetted. However, under the new relaxed standards urged by Congress, no one realized that these loans were bad and risky. The Federal Government, at the behest of the progressive, liberal Democrats, encouraged these lending practices and accused Republicans of discrimination when they suggested that these lending practices were unsustainable and dangerous. With these new risky buyers on the market, demand skyrocketed and, along with it, the housing prices. Warning bells were sounded, but they were just silenced and unheeded by the Democrats, for their own political expediency.