1 Boring Old Man

Bush seeks to increase minority homeownership
By Thomas A. Fogarty
USA TODAY
January 20, 2004

In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing Administration loans. In announcing the plan Monday at a home builders show in Las Vegas, Federal Housing Commissioner John Weicher called the proposal the "most significant FHA initiative in more than a decade." It would lead to 150,000 first-time owners annually, he said.

Nothing-down options are available on the private mortgage market, but, in general, they require the borrower to have pristine credit. Bush’s proposed change would extend the nothing-down option to borrowers with blemished credit…

Bush ties tax relief, home ownership
President wants to add new minority home owners

March. 27, 2004

CRAWFORD, Texas – Focusing on the dream of home ownership for the nation’s minorities, President Bush on Saturday credited his tax relief program for being a key to driving the housing market to record levels. “Because of tax relief, Americans have more to save, spend and invest — and that means millions of American families have moved into their first homes,” Bush said in his weekly radio address as he spent the weekend at his ranch.

In a swing through the Southwest on Friday, the president highlighted three of his economic policies he said can help nearly 400,000 low- or moderate-income families become home buyers. One of the approaches, the American Dream Down Payment Act, will help low-income Americans afford the down payment and closing costs on their first home. Bush is asking Congress to provide $200 million a year for the program. He also proposes to make zero down-payment loans available to first-time buyers whose mortgages are guaranteed by the Federal Housing Administration.

In addition, Bush is proposing a tax credit to encourage builders to provide 200,000 affordable homes over five years for low-income families. These and other steps, he said, will push the nation toward his goal of adding 5.5 million new minority home owners by the end of the decade.

Bush adviser: Housing-bubble fears overblown
Economic advisor Bernanke sees prices market-driven, not speculation

July. 12, 2005

The Bush administration is closely watching the housing boom, though so far the surge appears to be driven mostly by basic market forces and not speculation that could lead to instability, Ben Bernanke, the president’s top economist, said Tuesday. Federal Reserve Chairman Alan Greenspan and some private economists have raised concerns that the market may be getting too hot.

Speculative buying and selling seem to be cropping up in some areas, but other forces also are feeding the hot market and the surge in house prices, Bernanke suggested. "While speculative behavior appears to be surfacing in some local markets, strong economic fundamentals are contributing importantly to the housing boom," said Bernanke in his first speech as the new chairman of the White House’s Council of Economic Advisers.

Those fundamentals, he said, include low mortgage rates, rising employment and incomes, a growing population and a limited supply of homes or land in some areas… Greenspan has said there are signs of "froth" in some local markets where house prices seem to have risen to "unsustainable levels." It doesn’t appear likely, however, that a national housing bubble, which could pop and send prices tumbling, will develop, the Fed chief has said.

Greenspan also has raised concern that the froth in housing may have spilled over into mortgage markets with the rise of risky interest-only mortgages and the introduction of relatively exotic forms of adjustable-rate mortgages. "The administration will continue to monitor" developments in the housing market, Bernanke said. "However, our best defenses against potential problems in housing markets are vigilant lenders and banking regulators, together with perspective and good sense on the part of borrowers."

Bernanke’s comments on housing were contained in a broader speech delivered to the American Enterprise Institute on the need for Americans to gain economic security in a fast-changing, competitive global marketplace…

Challenging the Crowd in Whispers, Not Shouts
By ROBERT J. SHILLER

New York Times

November 1, 2008

^{ALAN GREENSPAN, the former Federal Reserve chairman, acknowledged in a Congressional hearing last month that he had made an “error” in assuming that the markets would properly regulate themselves, and added that he had no idea a financial disaster was in the making. What’s more, he said the Fed’s own computer models and economic experts simply “did not forecast” the current financial crisis. Mr. Greenspan’s comments may have left the impression that no one in the world could have predicted the crisis. Yet it is clear that well before home prices started falling in 2006, lots of people were worried about the housing boom and its potential for creating economic disaster. It’s just that the Fed did not take them very seriously.}

^{For example, I clearly remember a taxi driver in Miami explaining to me years ago that the housing bubble there was getting crazy. With all the construction under way, which he pointed out as we drove along, he said that there would surely be a glut in the market and, eventually, a disaster.}

^{But why weren’t the experts at the Fed saying such things? And why didn’t a consensus of economists at universities and other institutions warn that a crisis was on the way? The field of social psychology provides a possible answer. In his classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group…}

^{From my own experience on expert panels, I know firsthand the pressures that people — might I say mavericks? — may feel when questioning the group consensus. I was connected with the Federal Reserve System as a member the economic advisory panel of the Federal Reserve Bank of New York from 1990 until 2004, when the New York bank’s new president, Timothy F. Geithner, arrived. That panel advises the president of the New York bank, who, in turn, is vice chairman of the Federal Open Market Committee, which sets interest rates. In my position on the panel, I felt the need to use restraint. While I warned about the bubbles I believed were developing in the stock and housing markets, I did so very gently, and felt vulnerable expressing such quirky views. Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated…}

^{In 2005, in the second edition of my book “Irrational Exuberance,” I stated clearly that a catastrophic collapse of the housing and stock markets could be on its way. I wrote that “significant further rises in these markets could lead, eventually, to even more significant declines,” and that this might “result in a substantial increase in the rate of personal bankruptcies, which could lead to a secondary string of bankruptcies of financial institutions as well,” and said that this could result in “another, possibly worldwide, recession.” I distinctly remember that, while writing this, I feared criticism for gratuitous alarmism. And indeed, such criticism came.}

^{I gave talks in 2005 at both the Office of the Comptroller of the Currency and at the Federal Deposit Insurance Corporation, in which I argued that we were in the middle of a dangerous housing bubble. I urged these mortgage regulators to impose suitability requirements on mortgage lenders, to assure that the loans were appropriate for the people taking them. The reaction to this suggestion was roughly this: yes, some staff members had expressed such concerns, and yes, officials knew about the possibility that there was a bubble, but they weren’t taking any of us seriously…}

^{Why do professional economists always seem to find that concerns with bubbles are overblown or unsubstantiated? I have wondered about this for years, and still do not quite have an answer. It must have something to do with the tool kit given to economists and perhaps even with the self-selection of those attracted to the technical, mathematical field of economics…}

^{In addition, it seems that concerns about professional stature may blind us to the possibility that we are witnessing a market bubble. We all want to associate ourselves with dignified people and dignified ideas. Speculative bubbles, and those who study them, have been deemed undignified. In short, Mr. Janis’s insights seem right on the mark. People compete for stature, and the ideas often just tag along… Unless Mr. Greenspan was exceptionally insightful about social psychology, he may not have perceived that experts around him could have been subject to the same traps.}