{"id":189393,"date":"2010-04-05T12:24:00","date_gmt":"2010-04-05T17:24:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2010\/04\/05\/hoocoodaode\/"},"modified":"2010-04-05T12:24:00","modified_gmt":"2010-04-05T17:24:00","slug":"hoocoodaode","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2010\/04\/05\/hoocoodaode\/","title":{"rendered":"Hoocoodaode?"},"content":{"rendered":"

Michael Burry, who made millions from the collapse of housing bubble, talks about how it was all perfectly obvious that we were heading at 95 miles per hour into a brick wall<\/a>:<\/p>\n

Alan Greenspan, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. \u201cEverybody missed it,\u201d he said, \u201cacademia, the Federal Reserve, all regulators.\u201d<\/span><\/p>\n

But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen \u2014 with the expansion of easy mortgage lending \u2014 as high as they could go.<\/span><\/p>\n

I had begun to worry about the housing market back in 2003, when lenders first resurrected interest-only mortgages, loosening their credit standards to generate a greater volume of loans. Throughout 2004, I had watched as these mortgages were offered to more and more subprime borrowers \u2014 those with the weakest credit. The lenders generally then sold these risky loans to Wall Street to be packaged into mortgage-backed securities, thus passing along most of the risk. Increasingly, lenders concerned themselves more with the quantity of mortgages they sold than with their quality.<\/span><\/p><\/blockquote>\n

He is one of many people who began to worry about an over-inflated housing market,*<\/sup> though he has the distinction of being one of perhaps a dozen people who actually researched it thoroughly enough to risk his, and his clients’ money at Scion Capital.<\/p>\n

And he made a killing, to the tune of about $\u00be billion.<\/p>\n

Of course, Alan “Bubbles” Greenspan take on all this is that he was just lucky:<\/p>\n

Since then, I have often wondered why nobody in Washington showed any interest in hearing exactly how I arrived at my conclusions that the housing bubble would burst when it did and that it could cripple the big financial institutions. A week ago I learned the answer when Al Hunt of Bloomberg Television, who had read Michael Lewis\u2019s book, \u201cThe Big Short,\u201d which includes the story of my predictions, asked Mr. Greenspan directly. The former Fed chairman responded that my insights had been a \u201cstatistical illusion<\/span>.\u201d Perhaps, he suggested, I was just a supremely lucky flipper of coins.<\/p>\n

Mr. Greenspan said that he sat through innumerable meetings at the Fed with crack economists, and not one of them warned of the problems that were to come<\/span>. By Mr. Greenspan\u2019s logic, anyone who might have foreseen the housing bubble would have been invited into the ivory tower, so if all those who were there did not hear it, then no one could have said it<\/span>. <\/p><\/blockquote>\n

If Greenspan had no naysayers talking to him, it was because, as Paul Krugman so ably notes<\/a>, it was, “Because Greenspan insulated himself from people who told him what he didn\u2019t want to hear.”<\/p>\n

Krugman notes a number of people, Dean Baker, Robert Shiller, himself, etc., and notes that Greenspan’s alibis are an artifact of his lack of menschlichkeit (integrity).<\/p>\n

I would actually go further: He actually had a political and electoral purpose to his policies, which was that he held, and kept rates low, and encouraged things like exotic mortgages, because he wanted the Republicans in general, and George W. Bush in particular, to implement policies that he supported, such as the dismantling of Social Security, and by propping up the economy, he put the wind at their backs.<\/p>\n

The independent Federal Reserve is largely a myth, and treating it as such leaves us with people like Alan Greenspan running the show to the detriment of everyone else.<\/p>\n

*<\/sup>Hell, I was issuing dire warnings on the by invitation only Stellar Parthenon BBS<\/a> regarding what I thought was, and is, an over valued US dollar and increasing interest rates KOing the housing market in 2004, so I was right about there being a housing bubble, and the effects of low interest rates, but wrong, at least so far, as to the mechanism for the collapse of it all.
<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Michael Burry, who made millions from the collapse of housing bubble, talks about how it was all perfectly obvious that we were heading at 95 miles per hour into a brick wall: Alan Greenspan, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. \u201cEverybody missed …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[991,1010,970,973,1002,978],"tags":[],"class_list":["post-189393","post","type-post","status-publish","format-standard","hentry","category-academe","category-bureaucracy","category-corruption","category-economy","category-good-writing","category-politics"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/189393"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=189393"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/189393\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=189393"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=189393"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=189393"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}