Former Federal Reserve Chairman Alan Greenspan testified Wednesday before the Financial Crisis Inquiry Commission in Washington. While sticking to his guns that low interest rates he oversaw was not a cause of the real estate bubble, he also estimated that his policy decisions were correct “70% of the time”. Said Greenspan:
“When you’ve been in government for 21 years, as I have been, the issue of retrospect and what you should have done is a really futile activity. I was right 70% of the time. But I was wrong 30% of the time, and there were an awful lot of mistakes in 21 years.”
I wonder if he came up with his 30% mistake rate using the same formula to calculate the ideal federal funds rate from 2001-2006. I guess if there’s anything to learn from Mr. Greenspan, it is to always error on the low side.
Influx of Foreign Capital via Mortgage Bundles
One nice thing I will say about Greenspan’s explanations of the housing collapse is his point on the influx of foreign capital. Once Wall St. figured out they could securitize sub-prime mortgages and sell them abroad, we had two more influencing factors to the housing bubble: 1) a cavalcade of new buyers for US housing debt, propping up home values for a little longer and 2) an influx of foreign capital from the sales of these financial instruments which could be used to extend more credit or increase debt accumulation through derivatives. Mortgage-backed securities have been fairly well covered, particularly the moral hazard of transferring risky loans to other investors. But foreign capital flooding into the financial system really has not. Greenspan claims it was this phenomenon that was most responsible for the bubble, not his low federal funds rate. Seems rather convenient for him, but it is also a fair point as one of the many causes for the housing and financial collapse.
General Motors Takes A $3.4 Billion Loss in Q4 2009
The little company that could, as long as they receive a little help from the taxpayer pool, apparently still can’t. If their “Reinvention” commercial post-bailout wasn’t inspiring enough, I give you a $3.4 billion Q4 loss. GM lagged far behind competitors Toyota and Ford, who both posted profits during the period; one which featured improved auto sales. Now is certainly the time to strike for GM. I think it’s safe to say Toyota has hit an all-time public relations low with their faulty brakes. So take Q4 on the chin GM-owning taxpayers, and hope CEO Fritz Henderson has something up his sleeve. Really it doesn’t matter, because any returns made by the federal government using taxpayer funds will never be returned to the taxpayer, only used for more spending; or at best, to pay down federal debt from past spending. Remember that “returns” when it comes to owning shares in a company are usually distributed through dividends, equity-share payments, and/or net profit made from the final sale of the shares. Be sure to let me know if any of these reach your mailbox.