As expected, Greenspan thinks the Fed under his leadership has done everything right and that other factors are to blame for the housing bubble. The U.S. Federal Reserve??s ??easy money? policies during the first part of this decade didn??t cause the housing bubble, former Chairman Alan Greenspan wrote in the Wall Street Journal.
A surge in growth in China and other emerging markets led to an excess of savings that pushed global long-term interest rates down between early 2000 and 2005, Greenspan wrote in an article. That caused mortgage rates and the benchmark Fed-funds rate to diverge after moving ??in lockstep? from 1971 to 2002, he said.
The article is part of the former Fed chief??s defense against charges in books such as ??Greenspan??s Bubbles? by William A. Fleckenstein that his policy of keeping rates too low for too long inflated the housing bubble. The collapse in the U.S. subprime-mortgage market led to about $1.2 trillion in writedowns and the bankruptcy of Lehman Brothers Holdings Inc.
??Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have prevented the housing bubble,? Greenspan said.
