Sorry to jump in late

Honestly, I think folks are REALLY missing the point here.  The WSJ isn't jumping on Greenspan for any of the reasons they give.  What they are pissed about is:

1. The fact that Greenspan had a few chances to raise rates and for probably sound reasons, failed to do so.  There is NO greater crime on Wall Street than failing to raise interest rates.

2. The fact that little fish came to swim in their pond and like all such new rich trash, they embarrassed folks.  The next thing you know, there will be talk of "reform" in Washington, and we cannot have THAT now can we.

I yield to no person on earth in my total disdain for Alan Greenspan.  I have thought him a fool since he worked for the Ford administration.  But I don't think either the tech bubble nor the housing bubble was his fault.

There are real institutional reasons why this last real-estate bubble happened that have nothing whatever to do with Greenspan.

1. "The laws of the land were written in the interests of the petty real estate speculator" proclaimed Veblen at his most observant.  People forget that land speculation is even MORE basic and fundamental to the nation than the cultivation of tobacco.  It is what we do!

2. The barriers to entry are astonishingly low.  In many cases, dabbling in real estate is what people do when their unemployment checks run out.

3. A sub-prime market for mortgages is almost inevitable when the economic dynamic is the systematic destruction of those kinds of jobs that lead to high credit-rated scores.  If banks don't lower their lending standards, they have no business--or very little.

4. Information in how to play the real estate market is widely available in USA.  There are TV programs on how to dress up a house for sale, invest with no money down, property flipping, etc.  Bookstores sell score of titles on how to get rich.  So recruiting new players is a continuous project.

5. It is damn difficult to watch someone make, say $100,000 on a property owned for 6 weeks, when you are making $46,000 working 2200 hours a year.  At the height of this madness, everyone knew someone who had made magic money in real estate.  It seemed almost irresponsible or lazy not to join in the fun.

6. Banks lend money to real estate speculation when almost no other venture is funded.  This is thought of as "conservative" behavior.  The money that the Fed was pumping into the system went to real estate because their are so few places to put it to work.  Banks will NOT fund basic research into more efficient PV cells, for example, but they WILL fund the 42nd high-rise condo development in a given urban area because someone can show them a document that claims there is a market for at least four of them.

And so on.  There are so many institutional reasons for this behavior, I forget most of them.  All I know is that I have now lived through three of these real estate fiascos and they are VERY messy.  I lived in St. Paul when they overbuilt downtown office space and the market collapsed in 1982.  I'd bet good money that there is still today prime office space in some of those buildings that has never been rented.


"Remember the I35W bridge--who needs terrorists when there are Republicans"