The Real Deal Miami

Greenspan: Fed didn’t create housing bubble

March 11, 2009 12:27PM

In an editorial in the
Wall Street Journal, Alan Greenspan, former chairman of the Federal
Reserve, said there are two competing explanations of the origin of the
housing crisis. The first is that the “easy money” policies of the
Federal Reserve produced the housing bubble. The second, and more
credible explanation, according to Greenspan, is that the lower
interest rates on long-term, fixed-rate mortgages created the bubble.
Between 2002 and 2005, home mortgage rates led the U.S. home price change
by 11 months, and was a far better indicator of rising home prices
than the fed funds rate, Greenspan said.