Travis

Greenspan's Latest: Oil Boom Will Likely 'Go on Forever'

Is it human nature that people try to put the blame of current problems onto one person or item? Greenspan does not deserve this blame, and I agree with "NY EE," this article is poorly written.

As "NY EE" points out, an ARM does not equal sub-prime. There are many types of adjustable rate mortgages and they aren't evil. His statement is correct, you can usually save money when short term rates are lower than long term.

Most ARMs are fixed for a period of time (3,5,7,10 years). So for the majority who got an arm in the 3 or 5 year fixed range, the changes in the federal funds rate did nothing to them. Also, many if not most ARMs are tied to the Libor and not treasury indicies... while libor tends to follow treasuries, it doesn't all the time.

About technology: Greenspan praises the way in which technology affects global commerce as well as how the technology sector offers a lot of room for economic growth. He did not however believe all the hype of these over-valued stocks. Also, Greenspan hiked up the funds rate prior to the bubble bursting as he was trying to slow down the unprecidented growth (to curb possible inflation, and keep markets from acting too exuberant in any direction).

Regarding a real estate bubble. Yes, the lowering of interest rates (which was necessary following the tech burst and 9/11) made home financing cheaper and helped to create the bubble. But our economy was also in a panic after those two events, and we needed something. Besides that, even though the federal funds rate was raised from '04 - '07 long term interest rates still remained low - to the surprise of almost everyone. This kept financing cheap, and if the Fed can only raise rates (or inject/retract money) and long term interest rates still remain low, then it isn't all their fault.