ÿþ<html> <head> <meta http-equiv="content-type" content="text/html;charset=iso-8859-1"> <title>OnlineColumnist®.com: Putin Punishes Georgia</title> <meta name="generator" content="Adobe GoLive 4"> <style type="text/css"> .style2 { font-size: large; font-weight: bold; font-family: Arial; } .style3 { height: 69px; } .MsoNormal {} .style4 { font-size: x-large; font-weight: bold; } </style> </head> <body bgcolor="white" vlink="black"> <center> <table cool width="624" height="2719" border="0" cellpadding="0" cellspacing="0" gridx="16" showgridx gridy="16" showgridy> <tr height="79"> <td width="133" height="118" rowspan="2" valign="top" align="left" xpos="0"><a href="aboutdiscobolos.html"><img height="110" width="62" src="images/discobolos.logo.transp.gif" border="0"></a></td> <td width="7" height="118" rowspan="2"></td> <td width="482" height="79" colspan="2" valign="top" align="left" xpos="140"><img height="75" width="450" src="images/banner.GIF"></td> <td width="1" height="118" rowspan="2"></td> <td width="1" height="79"><spacer type="block" width="1" height="79"></td> </tr> <tr height="39"> <td width="182" height="39"></td> <td width="300" height="39" valign="top" align="left" xpos="322"><a href="aboutdiscobolos.html"><img height="14" width="267" src="images/divisionofNEW.GIF" border="0"></a></td> <td width="1" height="39"><spacer type="block" width="1" height="39"></td> </tr> <tr> <td width="624" colspan="6" valign="top" align="left" xpos="0" class="style3"> <table border="0" width="100%" bgcolor="black" cellspacing="0"> <tr> <td> <table border="0" width="100%" bgcolor="#99ffcc" cellspacing="0" cellpadding="4"> <tr> <td align="center"> <div align="left"> <a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> HOME</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> &#8226; <a href="articlesindex.html">ARTICLES</a> &#8226; <a href="books.html">BOOKS</a> &#8226; <a href="teflon.html"> THE </a><a href="teflon.html">TEFLON</a><a href="teflon.html"> REPORT</a> &#8226; <a href="mailto:letters@onlinecolumnist.com"> REACTIONS</a> &#8226; <a href="aboutdiscobolos.html">ABOUT DISCOBOLOS</a></strong></font></div> </td> </tr> </table> </td> </tr> </table> </td> </tr> <tr height="2"> <td width="133" height="2">&nbsp;</td> <td width="489" height="2576" colspan="3" rowspan="2" align="left" xpos="133" content valign="top" csheight="2573"> <p class="style2">Greenspan Shrugged</p> <p><b><font face="Arial,Geneva,Helvetica">by John M. Curtis</font></b><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><a href="books.html"><br> </a></b></font><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b> (310) 204-8700</b></font></p> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><i>Copyright October 23, 2008<br>All Rights Reserved. </i></font>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p> <p class="MsoNormal"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<span class="style4">F</span>ormer Federal Reserve Board Chairman Alan Greenspan told Chairman Henry Waxman (D-Beverly Hills) in the House Oversight and Government Reform Committee that he was  shocked by the collapse of U.S. credit markets.<span style="mso-spacerun: yes">&nbsp; </span> Greenspan has been blamed for supporting the deregulation that caused the current economic mess.<span style="mso-spacerun: yes">&nbsp; </span>Despite warning investors in 2005 that risks were overlooked, Greenspan encouraged<span style="mso-spacerun: yes">&nbsp; </span>packaging, by Fannie Mae and Freddie Mac, abstract investment instruments called derivatives, unregulated mortgage-backed products.<span style="mso-spacerun: yes">&nbsp; </span> The crisis, however, has turned out to be much broader than anything I could have imagined, Greenspan told Waxman.<span style="mso-spacerun: yes">&nbsp; </span>Greenspan had no such naiveté when he told a bloated stock market Dec. 5, 1996 that investors suffered from  irrational exuberance. <span style="mso-spacerun: yes">&nbsp; </span>Greenspan made no warnings about the recent real estate bubble.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Waxman tried his best to get the  maestro to admit that the past permissive regulatory system hastened the collapse of risky mortgage-backed investments.<span style="mso-spacerun: yes">&nbsp; </span> Those of us who have looked to the self-interest of lending institutions to protect shareholder s equity myself included are in a state of shocked disbelief, Greenspan told Waxaman.<span style="mso-spacerun: yes">&nbsp; </span>Greenspan never put his faith in the stock market even during former President Bill Clinton s go-go 90s, investing only in U.S. treasuries.<span style="mso-spacerun: yes">&nbsp; </span> During Clinton s bull-market, where governments, federal, state and local, collected unprecedented tax revenues, balanced budgets and, even some cases, generated surpluses. Government revenues never fully recovered from the 2001-2003 market crash, taking the Dow Jones Industrials down from 11,750 to 7,700.<span style="mso-spacerun: yes">&nbsp; </span>Today s crash dropped the Dow in record time from 14,000 in Nov. 2007 to 8,200 this month.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Today s market decline is far steeper than the nosedive following Sept. 11, 2001.<span style="mso-spacerun: yes">&nbsp; </span>It took nearly two years for the Dow to drop 4,000 points.<span style="mso-spacerun: yes">&nbsp; </span> In the latest collapse, it took less than one year to drop the Dow almost 6,000 points, decimating pension funds and 401(k)s, driving small investors into fixed income.<span style="mso-spacerun: yes">&nbsp; </span>Despite attempts to prop up the market, small investors remain guy-shy, unwilling to risk more savings or retirements in the stock market.<span style="mso-spacerun: yes">&nbsp; </span> During the last bull market lasting between 2003 and 2007, the real estate market saw robust growth, witnessing home values steadily rise.<span style="mso-spacerun: yes">&nbsp; </span>U.S. Gross Domestic Product and record low unemployment also soared from unprecedented consumer spending from expanding real estate wealth.<span style="mso-spacerun: yes">&nbsp; </span>Home equity lines kept the economy booming.<span style="mso-spacerun: yes">&nbsp; </span>Since the real estate bubble popped, home equity lines evaporated crushing GDP.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Most economists estimate that consumer spending accounts for two-thirds of GDP.<span style="mso-spacerun: yes">&nbsp; </span>When defaults and foreclosure began to rise last year, the nation s cash-flow driven by generous home equity lines evaporated, hitting the nation s financial system like a deadly torpedo.<span style="mso-spacerun: yes">&nbsp; </span>With the stock market melting down and homeowners defaulting on mortgages, banks lost revenue streams, creating the worst credit-crunch since the 1930s.<span style="mso-spacerun: yes">&nbsp; </span>When President George W. Bush signed the $700 billion bailout plan Oct. 3, he cautioned patience, that the rescue package needed time to work through the system.<span style="mso-spacerun: yes">&nbsp; </span>Interim bailout czar Neel Kashkari told the Senate Banking committee today that he saw progress in resolving the nation s liquidity crisis.<span style="mso-spacerun: yes">&nbsp; </span>Homeowners facing foreclosure aren t yet part of Kashkarai and his boss Treasury Secretary Hank Paulson s plans to fix the nation s credit crisis.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Waxman held Greenspan s feet to the fire, asking him whether he was wrong not to regulate derivatives, the mortgage-backed securities sold to financial institutions around the planet.<span style="mso-spacerun: yes">&nbsp; </span>For many investors, derivatives offered the illusion of collateralized investments, more secure than stocks because they were backed by real estate.<span style="mso-spacerun: yes">&nbsp; </span>Greenspan admitted reluctantly that he was  partially wrong not to regulate credit default swaps, instruments designed to act as default insurance for bond-holders.<span style="mso-spacerun: yes">&nbsp; </span>More regulation and oversight would have imposed stricter lending standards, avoiding the risk associated with subprime mortgages, loans made to borrowers with poor credit.<span style="mso-spacerun: yes">&nbsp; </span>Blaming Greenspan now for keeping interest rates low misses the problem behind the real estate bubble:<span style="mso-spacerun: yes">&nbsp; </span>Predatory lenders, requiring nothing down, artificially low teaser-rates and negative amortization loans.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Pointing fingers at the former Fed chief won t fix today s economic mess, threatening to drive the nation into a painful recession.<span style="mso-spacerun: yes">&nbsp; </span>Since we know what kept the economy booming, we also know how to fix the problem.<span style="mso-spacerun: yes">&nbsp; </span>So far, Fed Chairman Ben Bernanke and Paulson have figured out only half the puzzle:<span style="mso-spacerun: yes">&nbsp; </span>Banks must have cash-flow restored.<span style="mso-spacerun: yes">&nbsp; </span>Federal Deposit Insurance Corporation Chairwoman Sheila Bair figured out the other part:<span style="mso-spacerun: yes">&nbsp; </span>Provide mortgage-relief to borrowers in distress.<span style="mso-spacerun: yes">&nbsp; </span>Bair advocates using some of the bailout funds to help banks restructure bad mortgages.<span style="mso-spacerun: yes">&nbsp; </span>Keeping homeowners from foreclosure should help restore banks credit, reverse the real estate slide and improve cash-flow, enabling homeowners to stimulate the economy.<span style="mso-spacerun: yes">&nbsp; </span>Calling Greenspan on the carpet makes a good  dog-and-pony show but does nothing to fix the nation s current economic mess.</p> <p class="MsoNormal"> &nbsp;<bAbout the Author</u><b>John M. Curtis</b> writes politically neutral commentary analyzing spin in national and global news.&nbsp; He's editor of OnlineColumnist.com and author of <i><a href="books.html">Dodging The Bullet</a> </i>and <i><a href="books.html"> Operation Charisma</a></i>.</p> </td> <td width="1" height="2576" rowspan="2"></td> <td width="1" height="2"><spacer type="block" width="1" height="2"></td> </tr> <tr height="2574"> <td width="133" height="2574" valign="top" align="left" xpos="0"><img height="172" width="111" src="images/johninframe3.jpg"></td> <td width="1" height="2574"><spacer type="block" width="1" height="2574"></td> </tr> <tr height="1" cntrlrow> <td width="133" height="1"><spacer type="block" width="133" height="1"></td> <td width="7" height="1"><spacer type="block" width="7" height="1"></td> <td width="182" height="1"><spacer type="block" width="182" height="1"></td> <td width="300" height="1"><spacer type="block" width="300" height="1"></td> <td width="1" height="1"><spacer type="block" width="1" height="1"></td> <td width="1" height="1"></td> </tr> </table> <table border="0" cellpadding="0" cellspacing="2" width="597"> <tr> <td><font size="1" face="Arial,Geneva,Helvetica"> <hr noshade size="1"> </font><a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> Home</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> || <a href="articlesindex.html">Articles</a> || <a href="books.html">Books</a> || <a href="teflon.html">The Teflon Report</a> || <a href="mailto:letters@onlinecolumnist.com"> Reactions</a> || <a href="aboutdiscobolos.html">About Discobolos</a></strong></font> <div align="left"> <p><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">This site designed, developed and hosted by the experts at</font><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"> <a href="http://www.cmeonline.net" target="_blank"><img height="30" width="138" src="images/cmelogoANIM.gif" border="0" align="absmiddle"></a></font></p> </div> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">©1999-2005 <a href="aboutdiscobolos.html"> Discobolos Consulting Services, Inc.</a><br> (310) 204-8300<br> All Rights Reserved. </font></td> </tr> </table> </center> </body> </html>