The FOMC Debates the Housing Bubble in 2005

[Beet]

via Calculated Risk

Atlanta Fed President Jack Guynn:

"My supervision and regulation staff thinks this is an accident waiting to happen in our area. And while the local market excesses probably do not represent systemic national risk, the shakeouts could have serious regional consequences. My bank supervision staff points out that housing-related credit risks to our bank lenders are not so much from defaults on permanent mortgage financing that we talked about yesterday, but rather from lending for land acquisition, development, and construction. The ugly picture we have seen before—and that they think we may very likely see again before long—goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them saleable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it’s because of where I sit, but I am less comforted than some of my colleagues about the housing situation. ..."

CHAIRMAN GREENSPAN: Let’s take a break for coffee.

[phk]

The housing bubble should have been an obvious reality as early as 2004.

[Southern Senator North Carolina Yankee]

The housing bubble should have been an obvious reality as early as 2004.

Even if it was, if one didn't account for the potential danger due to interconnection and the effect on the banking sector etc etc, one could have just as easily dismissed the risk as near inconsequential which was done in late 2006.

[The Economist]

Not to be totally irreverent, but Greenspan’s response perfectly sums up his response to the bubble of 2004-2008, while he was Chairman, at least.

It’s true, the housing bubble was drying up as early as 2005 in other parts of the world (Greenspan notes this in his autobiography). However, in that self-same autobiography, be brushed off it and claimed essentially the housing market’s fundamentals were so strong as to deal with a few bad apples.

We should have probably clamped down on Fannie Mae & Freddie Mac in 2003, probably cracked down on private lenders making ridiculous loans that would never be repaid, and related to the housing bubble, cracked down on the derivatives exchange that in a sense was the goading on of all this.