ESTATE


Greenspan says fed didn’t cause housing bubble
2009/03/12, 6:07 pm
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In a Wall Street Journal op-ed published Wednesday, former Federal Reserve Chair Alan Greenspan defended his policies and said the Fed didn’t cause the housing bubble.

Greenspan said the Fed didn’t set the rates that really mattered—the rates on long-term, fixed-rate mortgages.

“No one, to my knowledge, employs overnight interest rates, such as the fed-funds rate, to determine the capitalization rate of real estate, whether it be an office building or a single-family residence,” Greenspan wrote.

Greenspan said the low interest rates were caused by growth in China and other emerging-market countries that led to relatively greater global savings rates compared to capital investment. This resulted in a decline of long-term interest rates and “is the most likely major cause of real-estate capitalization rates that declined and converged across the globe, resulting in the global housing price bubble,” he wrote.

He also outlined steps he believed should be taken to avoid another, similar financial system implosion. “Our challenge in the months ahead will be to install a regulatory regime that will ensure responsible risk management on the part of financial institutions, while encouraging them to continue taking the risks necessary and inherent in any successful market economy,” Greenspan wrote.

Source: The Wall Street Journal (03/11/2009)

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