Wednesday, August 13, 2008

Is Alan Greenspan Suffering From Dementia?

Former Federal Reserve Chairman Alan Greenspan, whose reign from 1987 to 2006 many blame for the current housing/credit crisis, has a suggestion for how to sell off the 800,000 extra unsold properties nationwide:

"The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants," he said. The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.

He estimates the number of new households in the U.S. currently is increasing at an annual rate of about 800,000, of whom about one third are immigrants. "Perhaps 150,000 of those are loosely classified as skilled," he said. "A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale -- and hence help stabilize prices."

A good idea from the 82 year-old? Or more of his recent kooky ramblings, which include the following:

"While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity," he said in October 2004.

Eight months later, he said if home prices did decline, that "likely would not have substantial macroeconomic implications."

And in a speech in October 2006, nine months after leaving the Fed, he told an audience that, though housing prices were likely to be lower than the year before, "I think the worst of this may well be over."

Greenspan sees an end to the housing crisis in 2009. If you'd like a good laugh, read the entire article: "Greenspan Sees Bottom in Housing, Criticizes Bailout."


credit savvy said...

I sure think he is

credit repair

Aaron Weber said...

I don't agree with every decision Greenspan has made but are you implying that advocating immigration is a mental illness?

Real C'ville - The Bubble Blog said...


First, you have a very interesting blog & we're looking forward to further trawling on it.

Second, here's the definition of dementia that we're working with, courtesy of "severe impairment or loss of intellectual capacity and personality integration, due to the loss of or damage to neurons in the brain."

Did you read the whole original article?

If importing "skilled immigrants" is the best that the Former Chair of the Fed can come up with to solve the over-supply of houses, when there are thousands of current citizens losing houses daily (1,300 per day to foreclosure in California alone) plus millions of current citizens for whom "affordable housing" is far far out of reach--then yes, there is something wrong with his brain.

Couldn't he come up with a new kind of bubble (we're only half kidding, ala "The Onion") or have come up with some kind of fix for the securitization issues?

Besides: other, supposedly less erudite and/or experienced entities have already suggested this as a "fix":

March, 2008,

July, 2008, A Harvard scholar:

July, 2008, A Blogger from Houston:

Montpellier said...

I'm not sure I think Greenspan is really suffering from dementia - it seems more likely it's another, less medically but more socially serious affliction of the elderly: the sudden urge to really say just what it is one honestly believes. I think it should be known as the 'aw fuckit, what do I have to lose now' syndrome.

Greenspan has always been a economic-cum-social-engineer, even though like all Rand-ian whackjobs, he's engaged in the most severe form of denial and projection about that reality. He would very much like to finish off the class war (mostly won at this point, frankly - the ownership society housing-wealth-effect was a fabulous head-fake on the tattered remains of the middle class) by flooding the semi-skilled labor markets (having already squashed the unskilled).

Like all great ideological propagandists - "true believers" - what Greenspan does is take a grain of truth as a starting point - in this case, the fundamentals of housing supply and demand: household formation vs. housing inventory - and then lay on top of it his policy preferences.

The sad fact is that housing prices will not stabilize until they return to their historical equilibrium vis-a-vis wages. You can try to "fix" the equilibrium by growing the population, but unless you grow jobs (and therefore wages) in proportion to the new workers, you will do nothing but depress wages further - housing prices will follow.

The logical flaw here (and no, Greenspan's not demented, but he is evil) - really, sleight of hand - is that the equilibrium isn't between households and housing prices, but wages and housing prices. All you get with a large population and low wages is a return to what we had in the late 19th century: crowded slum tenements. Many (tree-hugging) people argue this is perhaps the best use of McMansions, and indeed, there's good anecdotal evidence this is precisely how the last massive wave of immigrants helped absorb inventory.

If housing prices fall sufficiently relative to wages, then perhaps folks will spread out - indeed, the modern "norm" - the 'nuclear' family - was nothing of the sort until the post-WW-II era. Otherwise, it matters not how many you bring - we will return to multi-generational households with multiple wage earners propping up housing prices. Essentially, low wages drive low household formation.

Our Economic Aristocracy (the Rand-ian "libertarians" whom Greenspan serves) have discovered real limits on the exportation of 'skilled' jobs (outsourcing of the intellectual economy to China and India), and now seek to crack that labor nut another way: importing the workers. There is no shortage of US intellectual workers, but there is powerful labor bargaining - the Economic Aristocracy (overclass) would like to crush that as they've crushed the semi-skilled (manufacturing) and un-skilled (housing construction, domestic and agricultural sectors), by importing massive numbers from China and India.

Greenspan is merely attempting, as he has throughout his career, to spin the current disaster (one largely of his making) to the advantage of those he serves. The syndrome is best described by PJ O'Rouke's maxim: "Republicans are the party that says government doesn't work, and then they get elected and prove it." Of course, this is self-serving - it reinforces their own claims, in a bit of Orwellian double-speak.

Look at Greenspan's biography - he is 100% the product of the very best of public welfare policy - public education in particular - this country has ever produced. He is, if not a self-loathing [jew|gay|african-american] like other GOP warriors, the greatest class traitor since FDR. The Guilded Age Aristocrats are not stupid, and they have waged a multi-generational fight to return to the pre-Square-Deal order, borrowing from the opposition where necessary. But, I digress...

Greenspan, no less than Dumbya, is neither stupid nor crazy, though both provide good cover for a great deal of malicious policy.

George H said...

If Greenspan is suffering from dementia then he's easily dismissible. I think BB is engaging in hyperbole even while including a definition.

If he's Evil as Montpellier suggests it's a whole other story.

I appreciate this from Montpellier: "like all Rand-ian whackjobs, he's engaged in the most severe form of denial and projection about that reality."

That's a form of mental illness. Denial and projection come from/cause neurosis.

But really. The wage-to-price issue for houses is the key here. Unless this ever comes back to what used to be 'reality' it will remain a mess.

Great Essay: "Why the Rich Are Getting Richer and the Poor, Poorer" - Robert Reich (Clinton's Secretary of Labor)

Get Real said...

Insane flipper alert!!! 2421 Barracks Place, units 3/4. Selling for $179,500 apiece. Buyer paid $250,000 for BOTH units in June of this year!
Doesn't appear to be listed with a realtor, but I did see a flyer advertising an open house this Sunday. I'll bet the crickets will be chirping.

Mark said...

Greenspan is nuts. and Aaron, give me a break with your innuendos about the posters being xenophobes. Use your noggin for Pete's sake.
Not sure if Charl-Alb are doing this, but one great way to deal with foreclosures is for the county to use them to house their employees...whether they rent them or sell them, it's worth looking into.
I am not one of those commies who thinks it's a travesty of social justice that our police officers have to commute from Lake Monticello, Louisa, Staunton, et al., but we might as well have someone in those homes. And if you're going to pay a teacher/cop/fireman $30k a year, reduced rent and a shorter commute would be a good perk. Plus all the greenies around here would love that Officer Bill isn't burning fossil fuels all the way between Afton Mtn and C-ville. It's win-win for everyone.
Anybody want to comment who knows more about such programs?

Toronto realtor said...

It just shows the abilities of central banking system. They are not able to predict anything (because you need crystal ball to predict economic events...) and they are setting the most important price on the market - the price of money. We can't wonder time from time such mess occurs. It's not only about Fed. I am realtor in Toronto and we are lucky only because we don't have so many subprime mortgages. Calling more immigrants can be a solution for housing market, however - is this the way how we should solve such crisis??