Is Greenspan Wary of Housing Problems?
Even the major media have trouble agreeing just what the Fed Chairman said.
Its easy
to see why advanced economics confuses some people, especially when
even the media dont agree on whats going on. Every time Fed
Chairman Alan Greenspan has spoken in public, he has created more
evidence of this problem.
Greenspans June 9, 2005, testimony before the Joint
Economic Committee of Congress resulted in typically mixed messages
except on Wall Street, where the Dow Jones industrials rose 26.16
points to close at 10,503.02.
In Washington, both The Washington Post and Washington
Times agreed that Greenspan was wary of the housing situation.
The Post led its Business section with the headline
Greenspan Wary of Risky Mortgages atop a story about the meeting
and a column about hedge funds. The main story followed with another
cautious headline: Price Peaks Built on Exotic Loans Trouble Fed
Chairman.
The Washington Times took the same position, warning,
Greenspan says beware of bubbles. That article was the lead piece
on the front page and included another caution about mortgages: Fed
chairman issues warning on home loans.
Both the Times and Post were technically correct. Yes,
Greenspan did warn about housing loans, but he also made it clear
that there is little worry over a national housing bubble. According
to Reuters, a bubble in home prices for the nation as a whole
does not appear likely, said Greenspan. He did say there were
signs of froth in some local markets, a quote he has used before
that has been dissected a great deal. In other words, Greenspan
thinks there is potential for problems in local markets, but not
nationwide, despite the media feeding frenzy on the idea of a
housing bubble.
What Greenspan did warn about was recently popularized
forms of home loans, especially interest-only mortgages. The
dramatic increase in the prevalence of interest-only loans, as well
as the introduction of other relatively exotic forms of
adjustable-rate mortgages, are developments of particular concern,
Greenspan explained, according to Reuters.
Of course, the Post also included a mocking column by
Dana Milbank that criticized Greenspan's hedging and dodging.
However, Milbank did get to the heart of the problem facing the
media by saying his comments left his listeners to take what they
wanted from his testimony. As Milbank added, At yesterday's
hearing in the Rayburn Building, it was the best of times and the
worst of times.
Two major newspapers, USA Today and Investors Business Daily, saw
the glass half full after Greenspans performance and responded with
headlines quoting his reference to the economy being on a firm
footing.
USA Today headlined its business section with: Fed
chief cites reasonably firm footing. And Investors Business Daily
was even stronger, leaving out USA Todays reasonably qualifier:
Greenspan Says U.S. Is On A Firm Footing; More Fed Hikes Ahead.
In this case, USA Today was using the more accurate
quote. According to Reuters, Greenspan said: The U.S. economy seems
to be on a reasonably firm footing, and underlying inflation remains
contained. Thats not quite as upbeat as the IBD headline indicated
by leaving out reasonably.
Still, upbeat is a fairly accurate way to describe the
session. Heres Greenspan on the whole economy: Despite the uneven
character of the expansion over the past year, the U.S. economy has
done well, on net, by most measures.
Both The New York Times and Wall Street Journal
reported the Greenspan testimony as murky. The Times had a front
page story with a headline hinting at their conflict: Mortgage
Rates Defy Fed and Delight Consumers. On the front page of the
Business section, they followed up with the generic Greenspan Says
Feds Work Not Yet Done, as if the Feds work is ever done.
The Journal was the only paper that buried the main
story about the congressional testimony inside the paper, on page
A4. That piece was headlined: Fed Chief Signals Rates Still to
Rise. A smaller headline followed with both good and bad news:
Greenspan Says Economy Has Left Soft Spot Behind, But Notes Housing
Risk. The Business section stock market story for the day indicated
surprise the markets were doing well after the hearing: Blue Chips
Rise Despite Greenspan Testimony but warned, Fed Chairman
Indicates No Plans To Stop Raising Rates Soon.
Over at Reuters, they also included a good bit of what
Greenspan had to say, for readers to decide for themselves: (click
here)
