[Las Vegas]

http://online.wsj.co...5066989281.html

[Merlin Jetton]

I don't buy Greenspan's alibi. The Fed was a part of the cause. He says the Fed controls only the fed-funds rate, a short-term rate, whereas the rate on mortgages is a long-term rate.

Many of the subprime mortgages were adjustable rate mortgages (ARMs), on which the initial rate was quite dependent on short-term rates. ARMs with low teaser rates created more demand from mortgage borrowers. ARMs increased investor demand for more mortgages to be bundled and repackaged into mortgage-backed securities (MBS). Lower interest rates on U.S. Treasuries induced more investor demand for MBS -- and less for U.S. Treasuries -- the MBS offering a much higher yield (or spread versus Treasuries) and appearing nearly as safe. There was feedback, too. The investor demand for MBS pushed the demand for more mortgages to make more MBS, and consequently less credit screening at mortgage origination.

This post has been edited by Merlin Jetton: 11 March 2009 - 09:39 AM

[Chris Grieb]

There is so much blame to go around for the sub prime mortgage mess. Greenspan was part of it.

[Brant Gaede]

By writing a narrowly focused article AG has managed to write himself out of his responsibility.

--Brant