Michael Burry, former head of Scion Capital, LLC, wrote in the New York Times that Alan Greenspan, the former head of the Federal Reserve, should have “foreseen the collapse of the U.S. housing market and warned the public.” From Bloomberg:
“He should have seen what was coming and offered a sober, apolitical warning,” Michael Burry, who was head of Scion Capital LLC, wrote in the Times. “Everyone would have listened; when he talked about the economy, the world hung on every single word.”
“Unfortunately, he did not give good advice,” Burry said. In 2005, “Mr. Greenspan trumpeted the expansion of the subprime mortgage market” at a time when “the tide was about to turn,” Burry wrote.
“The signs were all there in 2005, when a bursting of the bubble would have had far less dire consequences and when the government could have acted to minimize the fallout,” Burry said in his commentary.
Burry, who was among the first to bet on subprime mortgage defaults, said Greenspan and other Fed officials have never asked how he came to his conclusions about the market.
“Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat,” Burry wrote.
I wouldn’t put myself in the same class as Burry, but as a relative newbie to the real estate business in 2003/2004, even I could see how absurd the home valuations were. Rundown 3-bedroom houses in south central Los Angeles were appraising for $500,000! Who in south central LA could afford a home for that price? It’s not that hard to see that insane home prices = nobody can afford homes = home prices must fall to where people can afford them. It’s simple supply and demand at work, yet Greenspan missed it entirely?
I don’t believe for a minute that Greenspan was clueless as the housing bubble inflated to epic proportions. I highly doubt he would survived nearly two decades as head of the Federal Reserve if he wasn’t an extremely intelligent man. The fact is it’s hard to make unpopular decisions, and ending the party early would have most definitely been unpopular. But just because a decision is tough doesn’t mean it shouldn’t be made. That’s the responsibility of true leadership, and true leadership is something our nation desperately needs right now.
-CH
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