The Man Who Knew: The Life and Times of Alan Greenspan — Twenty-eight: THE FOUR WINDS

1. 1. The post-WWI gold standard consensus proved disastrous, depriving monetary authorities of tools to fight the Depression.
2. 2. The tipping point for financial excess came around 2004, when Ameriquest sponsored the Texas Rangers ballpark, symbolizing subprime mortgage mania.
3. 3. Countrywide CEO Angelo Mozilo boasted of a dizzying array of mortgages, including ARMs, interest-only loans, and no-doc programs.
4. 4. By mid-2004, subprime loan volume nearly doubled year-over-year, and one third of subprime mortgages lacked meaningful income verification.
5. 5. Securitization of subprime mortgages soared from 40% in 2000 to 73% in 2004, peaking at 93% before the crisis, fueled by insatiable investor demand.
6. 6. Greenspan refused to act preemptively against the mortgage mania, believing risk modeling had improved and that the Fed could clean up after crises.
7. 7. Consumer advocates failed to connect predatory lending to systemic risk, focusing instead on protecting vulnerable groups.
8. 8. Fed Governor Edward Gramlich proposed a pilot program to inspect mortgage lenders in 2000, but Greenspan opposed it, and Gramlich dropped the idea.
9. 9. Greenspan testified in 2004 that Fannie Mae and Freddie Mac posed a systemic risk due to thin capital buffers and implicit government backing.
10. 10. The Fed's low interest rates and forward guidance in 2004-2005 fueled a 'reach for yield' that inflated the housing bubble, as acknowledged in FOMC discussions.
11. 11. Greenspan dismissed the housing bubble in 2004, claiming a national price distortion was unlikely and that most borrowers could repay.
12. 12. Greenspan called the persistence of low long-term interest rates a 'conundrum' in 2005, but he did not change policy to address it.