Greenspan Failed?
Issue: 9/14/07 Thursday
Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy. ”While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,” he said a CBS “60 Minutes” interview to be broadcast Sunday. “I really didn’t get it until very late in 2005 and 2006,” Greenspan said. ”Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it’s very difficult for banking regulators to deal with that,” Greenspan said in the interview.
Critics say the Fed kept rates too low for too long, encouraging a Wild West mentality in housing.
Greenspan, however, defended the institution’s actions. ”They are mistaken,” he said of the critics. “It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low,” he said.
Well, if the Maestro didn’t see that sub-prime train coming down the tracks, then don’t be surprised if Bernanke doesn’t read the future well either.
Rates on 30-year mortgages dropped this week to the lowest point in four months. Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.31 percent this week, the lowest level since May 17, when 30-year mortgages averaged 6.21 percent. The rate had been 6.46 percent last week. Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, averaged 5.97 percent this week, down from 6.15 percent last week.
This is a good indication of how the falling US Government interest rates are affecting the mortgage market. Also, the Fed made a bunch of money available to banks and finance companies, and that money is making its way into the mortgage market. Countrywide announced that it got some more financial backing today. This helped the fickle stock market go up, but should have been another red flag in fact.
The unemployment claims report includes the holiday week so increased volatility should be expected. What we’ve been seeing is low layoffs in initial claims given the lean supply of available workers if new hiring is needed. Meanwhile continued claims 4-week average reached a 20 month high last week as hiring has slowed — and left a decline in August payrolls. These figures remain consistent with a tight, but loosening, labor market. So did you get that jargin? If the 4-week average is at a 20 month high, that means that unemployment is HIGH, and this is a bad indicator (but actually a very unreliable indicator) that the economy is slowing.
In Italy, consumer groups held nationwide protests Thursday to draw attention to the burden placed on families by the rising cost of food—especially Italians’ beloved staple, pasta. The price of basic commodities are being driven up by middlemen, while farmers and producers earnings remain flat, activists said at protests in Rome, Milan and Palermo. In the case of pasta, Italians will soon be paying up to 20 percent more for their daily serving of fettuccine, linguine or spaghetti. Picking on Italians’ staple to draw attention to their cause, consumer groups called the one-day pasta strike Thursday, not against eating it, but against buying it. I’m bringing you this tidbit of international news to show you that INFLATION is going on everywhere. Be aware, and be prepared!!!!
Here are Today’s closing details:
DJ30 – 13,424 – Up 1% or 133 points