Good digging by Mish. Here are my comments posted to this one:
Ok so let me get this straight -- McCulley calls for a housing bubble, Greenspan complies, Greenspan gets job at PIMCO?
In fact, here is the full timeline:
- Early 80s: Greenspan completes ground-breaking PhD thesis on housing bubbles, home equity extraction, and the effect on the broader economy. Thesis is buried. Greenspan moves from Council of Economic advisors to fast-track to Fed chief.
- 1987: Greenspan makes Fed chief.
- 1996-1998. Greenspan sabre-rattles about "irrational exuberance"; fails to do anything to stop it.
- 2000/01: NASDAQ bubble pops.
- 2002: McCulley, et al., call for aggressive housing bubble generation. Greenspan complies; holding rates low to an insane level till 2004.
- 2004: Greenspan jeers at people who choose fixed-rate mortgages over ARMs (while interest rates are at his artificial 1%; making fixed-rates the smarter deal).
- late 2004 onward: Interest rates go up, 1% indefinitely makes it look like we're still in a recession.
- 2005: Housing bubble clearly overheating; Greenspan denies he sees it. Keeps raising rates, though.
- 2006/2007: Bubble finally pops due to its own exhaustion.
- 2007: Having successfully created the bubble and denied responsibility, Greenspan goes to PIMCO.
- PIMCO seems eerily ahead of the curve in anticipating government bailouts, including bond backstopping of all sorts: Fannie/Freddie, Treasuries (quantitative easing), GMAC, etc. New catchphrase: "Don't fight the PIMCO"?
So... is it Congressional subpoena time yet?