The housing bubble was former U.S. Federal Reserve Chairman Alan Greenspan’s doing – plain and simple.  He gave birth to it, nurtured it, protected it, and guided it during every stage of its development.  In fact, if there were a deck of playing cards featuring the key players in this debacle, Alan Greenspan would be the ace of spades. 

So, it was strange to hear Greenspan, in an interview last week on CNBC, cast his eyes upon the charred landscape that was once the national real estate market and offer high-minded criticisms of the obvious excesses and irrationalities that brought on the devastation. 

Greenspan’s attitude was akin to a retired drug dealer lamenting the urban blight caused by rampant addiction.  The former Fed chief noted that housing prices were still too high, that too many homeowners were upside down on their mortgages, and that Fannie Mae (FNM) and Freddie Mac (FRE) were accidents waiting to happen. 

Methinks the serial bubble blower doth protest too much.

Indeed, the fact that the media still holds this joker in such high esteem is a testament to just how clueless most journalists really are.  Rather than fawning over his every word, journalists should be grilling him like they’re interrogators for the CIA. 

Though, in his new post-Fed-Chair incarnation, Greenspan does show an increased willingness to speak the truth: Perhaps sharp candor generates higher speaking fees than murky academic jargon.  But conveniently missing from his belated admission that home prices are too high is the concession that his irresponsible monetary policies propelled prices to those heights in the first place. 

In fact, even as the housing bubble was inflating, Greenspan repeatedly denied its existence.  He took every opportunity to talk the real estate market up and went out of his way to justify irrationally high home prices.

His concerns about upside-down mortgages are particularly offensive given his consistent praise, when he was Fed chairman, of the ability of home equity extractions to fuel economic growth.  In fact, during the final years of his tenure there was no greater proponent for cash out re-financing than Alan Greenspan.  

Greenspan not only commended homeowners for their sophisticated approach to "managing their home equity" on a routine basis, he applauded Wall Street and mortgage lenders for their creativity and ingenuity.  Of course, home equity extractions are largely responsible for so many homeowners now owing more than their homes are worth! 

However, his most brazen contention was that he had tried to warn us of the dangers that Fannie and Freddie could pose to the entire economy.  Excuse me, but when exactly did he sound this alarm? 

His points that Fannie and Freddie should not exist, and that the moral hazard of private profits and socialized losses are an accident waiting to happen would have been right on point had he actually made them while still head of the Fed.

It’s just too bad Maria Bartiromo did not remind Greenspan that the accident has already taken place.  Fannie and Freddie’s flawed design may have rendered them destined to slip, but it was Greenspan himself who supplied the banana peel.

[Editor's Note: Peter D. Schiff, Euro Pacific Capital Inc.'s president and chief global strategist, is a regular contributor to Money Morning, and most recently wrote that the  U.S. Congress was mortgaging the future and sticking future generations of taxpayers with a big bill - just to bail out Fannie Mae and Freddie Mac. To find out how to get a report on the once-in-a-lifetime profit plays that will emanate from the so-called "SuperCrash" - and a free copy of Schiff's New York Times bestseller "Crash Proof: How to Profit from the Coming Economic Collapse," please click here.]

News and Related Story Links: 

• CNBC:
  CNBC’s Maria Bartiromo Sits Down with Former Fed Chairman Alan Greenspan and Managing Director of Pimco Paul McCulley on CNBC’s "Closing Bell"

• Money Morning:
  The Three Signs That the Credit Crisis Has Yet to Hit Bottom

• Money Morning:
  The Lost Decade: How the U.S. Financial Crisis Resembles Japan’s Ten Years of Misery – And How to Play it

• Money Morning:
  Congress Mortgages the Economy’s Future to Save Fannie Mae and Freddie Mac.