Housing Crash

Why did Alan Greenspan continue to raise interest rates past 4%? Back in 2005 the fed under Alan Greenspan was raising interest rates. I understand that interest rates could not stay at 1% (Fed funds rate). A long time ago in economics 101, I was told that the sweet spot in our economy was with interest rates at 4%. I’m not as smart as Alan Greenspan; but, after a 3% increase in interest rates; common sense would demand taking a breather. This isn’t hind sight. Even at the time I remember thinking, “what is he doing”. I thought maybe the need to borrow money for our war against Islam might have caused the need to raise interest more than would otherwise be necessary.

In all fairness, our government can’t completely dictate interest rates. The Fed, in theory, acts like that little lead weight they put on your tiers. The Fed must balance the governments financial needs with the market. That said, the U.S. government is a huge factor in the market and it has a disproportional influence on interest rates.

You can’t directly correlate the “Fed funds rate” with adjustable mortgages; but, any one who claims they did not see this real estate crisis coming needs to learn to count on their fingers. You can’t raise the fed funds rate 4.25% without having some effect on mortgages. Shortly after the fed funds rate reached its peak at 5.25%, Ben Bernanke succeeded Alan Greenspan as Fed chairmen. Greenspan blamed low interest rates for the housing bubble. The problem was not the bubble; but, the way they let the air out of the bubble, too fast. Ben Bernankes own Bernanke Doctrine says not to do this. In 2006 Ben Bernanke still had time to drop interest rates according to his own doctrine and administer a soft landing for an inflated housing market.

Between them, Ben Bernanke and Alan Greenspan, have more letters after their names than the Chinese alphabet. Alan Greenspan acted like a drunk and Ben Bernanke did nothing to undo the damage as the economy crashed. And now where are interest rates. This is yet another reason to keep the state small and the individual big.

Have either of these guys ever explained why they kept interest rates artificially high, knowing it would cause a cascading economic failure?