Notes on the Atrocities
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Wednesday, July 21, 2004  

Is Greenspan Credible?

A few months ago, Alan Greenspan encouraged Americans to start using adjustable-rate mortgages (ARMs) in one of his speeches. Along with the ritual language of dollar strength and employment gains that mark his periodic liturgical offerings, he muttered: "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage." Adjustable-rate mortgages offer an initial low rate--often more than a point below a 30-year fixed rate--and then follow the market. When interest rates go up or down, so does the ARM.

There are good times and bad times to encourage ARMs, and from the mortgage-holder's point of view, this is definitely a bad one. With interest rates at all-time lows, there's no way for ARMs to go down. Deficits and rising inflation guarantee that they'll actually go up--possibly very quickly. If anyone was in a position to know this, it was Al. So what the hell was he talking about?

Obviously, he was trying to keep the economy pumped, and housing sales were about the only bright spot. Having already sold out his commitment to fiscal sanity by endorsing the Bush tax cuts, the chairman had little recourse but to try to keep home-buying chugging along. Hey everybody, why not try an ARM?

Yesterday, the Chairman came out all smiles. He pronounced everything hunky dory, saying "economic developments have become quite favorable in 2004" and "expansion has become more broad-based and has produced notable gains in employment." Really? Employment seems to have stalled. Consumers aren't buying. The housing market may be at the wrong side of a bursting bubble. Wages are down against inflation.

Greenspan brushed recent bad numbers off as a "rough patch." Could be. Once upon a time, you could trust the chairman to at least offer actual analysis, not GOP spin. We wouldn't have to consider his words in the context of a floundering president in the midst of a failing re-election bid. Now we do.

Is Greenspan offering his true opinion, or feeding us another ARM-like red herring to bouy Bush?

posted by Jeff | 7:32 AM |
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