Delphic

Hillary Clinton gets some pushback on her idea of letting Alan Greenspan solve the country's economic problems and replies:

Not only that, but the Fed didn't act while he was there. But he has a calming influence still to this day on Wall Street -- don't ask me why because I never understand what he's saying -- but nevertheless people respond to that Delphic oracle approach. I think it would be wise to include him. And recently he's come out and vert smartly so that we have to deal with housing and maybe we need to have some kind of buyout mechanism for mortgages. So he's moved on his understanding and depth of the problem -- but you know you could pick three others. You just have to have some demonstrable involvement of presidential leadership.

Basically, she's the candidate of experience and policy substance, but when challenged on the particulars of her policies it's all "math is hard!" don't ask me how the magic works. But when Greenspan told people they should take out Adjustable Rate Mortgages, I think that was perfectly clear and understandable. And many of them probably felt that if the Delphic Greenspan believed that sort of thing was wise financial management, that maybe they should swallow their doubts and do it. And therein lay the genesis of at least some of our current problems.

Comments

I am so glad I didn't take Greenspan's advice on ARMs. Yeah, my traditional fixed rate loan is kind of boring, but it sure looks like a better choice now.

Posted by fostert | March 25, 2008 8:10 AM

1) The Problem is NOT just with subprime mortgages -- you know if those are in default or not.

2) The problem is with derivatives which are opaque --including to the people trading them. And the derivatives mess, as I've noted, was DIRECTLY CAUSED by Bill Clinton signing off on a Senator Phil Gramm financial deregulation amendment in the waning days of 2000.

3) Why isn't anyone asking Hillary what kind of "experience" she gained back when this mess was being created??

4) IT's pretty obvious that there is a conspiracy of silence to not publicly discuss who's to blame for this mess. Just as with IRaq, the Clintons can't confront the Republicans over the disasters the Republicans cause because the Clintons were partying in the whore house with the same hosts as the Republicans.

5) Anyone seen those Clinton tax returns yet??
Why Not?

Posted by Don Williams | March 25, 2008 8:17 AM

Clinton has a pronounced fondness for "high-level emergency groups", "bi-partisan commissions" etc. This is just the latest instance where she has proposed one. Recall that while criticizing Edwards and Obama for proposing to extend the Social Security payroll tax beyond the $97,500 cap, she then said she would appoint a bipartisan commission to tell her what to do about Social Security.

She likes to make this sound like leadership. But it is actually the ultimate buck-passing.

Posted by Dan Kervick | March 25, 2008 8:20 AM

Greenspan and Rubin for economic czars; Colin Powell for goodwill ambassador (maybe to the UN?); O'Hanlon for National Security Adviser; maybe Mark Penn for public relations. I can feel the change; it's gonna be overwhelming.

Posted by della Rovere | March 25, 2008 8:28 AM

HRC is all about sounding important regardless of what she's actually accomplished. Even today, with her claims of having "misspoke," she's trying to brush off the fact that she flat-out lied on several occasions (that we can prove).

The sad thing? Millions of over-worked/underpaid Americans fall for her crap, no thanks to their willful ignorance.

As for those tax returns, expect them the day after she wins the PA primary. Should Obama pull a miracle win (doubtful), well, maybe after IN and NC? Don't think so... They'll be too busy, getting even more involved in John McCain's campaign.

Good Democrats, heed the words and actions of Bill and Hillary Clintons!!! Do NOT support Barack Obama!!! VOTE McCAIN!!! We CANNOT let Obama win the White House!!! Hillary can wait 4 years but she will NOT wait 8!!! Hillary will save the world!!! (Well, actually one of her bipartisan commissions will but, a la Giuliani, she and her husband will take all the credit.)

Posted by Clinton Oracle | March 25, 2008 8:38 AM

Here's the part of the interview that stuck out to me:

She blamed part of the problem on President Bush's management style, saying Bush "needs to have the same level of engagement with the economy" that he has with Iraq.

Count me as one of those who's thankful that W hasn't been looking to Hillary for advice the past seven years. I think we'd be broke by now.

Posted by Jake | March 25, 2008 8:39 AM

Despite what Matt and other morons on the left say, ARMs were and remain a good idea for many homebuyers. I'll never understand the politicization of basic finance.

Posted by Thomas | March 25, 2008 8:39 AM

Reminds me of her plan for Social Security:

---
Q: Did you say you would consider lifting the cap perhaps above $200,000? A: I have said consistently that my plan for Social Security is fiscal responsibility first, then to deal with any long-term challenges. We would have a bipartisan commission. All of these would be considered. I do not want to balance Social Security on the backs of our seniors & middle-class families. We have to move back toward a more fair and progressive tax system, and begin to move toward a balanced budget with a surplus.
Source: 2007 Democratic debate at Drexel University Oct 30, 2007

----

Nothing says political bravery and DC experience more than "Difficult issue? Bipartisan commission!"

Probably involving Greenspan, too.

Posted by riffle | March 25, 2008 8:42 AM

I can usually guess the real word, but what is this sentence supposed to be?

" And recently he's come out and vert smartly so that we have to deal with housing and maybe we need to have some kind of buyout mechanism for mortgages. "

Posted by Njorl | March 25, 2008 8:44 AM

I'll never understand the politicization of basic finance.

The first step is to insist that people have absolutely no free will whatsoever, then everything else just rolls from there.

Posted by DDP | March 25, 2008 8:49 AM

"Despite what Matt and other morons on the left say, ARMs were and remain a good idea for many homebuyers. I'll never understand the politicization of basic finance. "
Posted by Thomas

There were certainly times and circumstances when ARMs were the way to go. But "remain"?! You must be nuts!

Interest rates have been artificially suppressed to soften the crash. They will go up by large amounts very soon. Anyone getting an ARM now should put all of their money in a pile and burn it for warmth. They'll get more out of it that way.

Posted by Njorl | March 25, 2008 8:50 AM

And many of them probably felt that if the Delphic Greenspan believed that sort of thing was wise financial management, that maybe they should swallow their doubts and do it.

Come on. The people who took out ARMs without really understanding the risks are not, generally, people who even knew who Greenspan was, let alone what his opinions about home financing were. If you read the opinions of the fed chairman but aren't capable of assessing what kind of mortgage is right for you (or conscious of the need to get expert advice when making that kind of decision), you deserve what you get.

I'm not saying lots of people weren't suckered (or defrauded) into loans that were bad for them; they were. But they were also, by and large low information borrowers.

By the way, I have an ARM, but it's rate is 1) linked to prime, and 2) limited to a 1% adjustment per year. I took out the mortgage when I knew I would likely be selling my house before or soon after the first rate reset. I offer this information not to congratulate myself for wisdom, but to point out that not all ARMs are bad. Like the term "subprime mortgage crises," the term "ARM mortgage" is at risk of become an inaccurate shorthand label that obscures the true nature of a complex problem.

Posted by FearItself | March 25, 2008 8:58 AM

We ignored Greenspan and, apparently, most of our fellow citizens. We ditched the 30 year note for a 10. We wound up with slightly higher monthly payments, but we'll own the house before I retire. Maybe, by then there'll be another housing bubble and we can retire to Fiji.

Posted by Jeffrey Davis | March 25, 2008 9:14 AM

Hillary's ideas on this issue at best are not very creative or substantive...the same old tired thinking that got us into this mess.

As for Greenspan...well, that's the same answer McCain has for his economic program: just invoke the name of Greenspan. So in yet another way, Hillary and McCain are alike.

Aside from Greenspan's flaws, I'm surprised more people are not upset by the mention of getting Rubin involved.

This guy has been a high ranking executive at Citigroup while that company got knee deep in the submprime mess. Apparently, Rubin did nothing to stop it and did not foresee the danger.

Citigroup lately has been going around the world asking for handouts, and received a ton of cash from the Middle Eastern oil barons.

Now how can such a person, whose company is right in the middle of this subprime mess, rightfully represent the nation in trying to get us out? Does anyone else see a huge conflict of interest here?

Would Rubin try to steer the govt towards solutions that benefit Citigroup and his buddies there, and not necessarily the entire country?

Remember, Rubin placed a call to try to get taxpayers to bail out Ken Lay and Enron.

When it comes to the Clintons, there is no reason to trust them whatsoever, and every reason to doubt.

Posted by cm | March 25, 2008 9:15 AM

MY's angling for Snark Czar in an Obama administration.

Posted by Undecided | March 25, 2008 9:17 AM

I heard someone claim recently that Hillary is not really very smart. In fact, she flunked the bar exam the first time she took it. She seems smart because she is so articulate, but the idea that she is actually not too bright is gaining credence the more I hear her spout inanities like this one about Greenspan.

Posted by Jim W | March 25, 2008 9:31 AM

Jake:
What level of involvement has Boosh had with Iraq besides ordering the invasion? The guy is one clueless mofo. Can I have more of what Hillary is smoking because it seems damn good.

Posted by Joe Klein's conscience | March 25, 2008 9:34 AM

I think the other problem with the ARM is that a lot of people bought into them in 2002-03 when the rates were at 5%. Even a subprime loan would have been a fairly decent interest rate in that time period.

Nor are AMR's or subprime mortgages the only piece of the puzzle. Rising energy costs--heating oil and air conditioning in the summer--can make monthly heating and cooling bills astronomical. I know people in TX who pay over $700 per month during the summer to cool their homes. It gets worse for new homes that are poorly insulated. I imagine in states that get a winter with lots of snow and months of freezing temperatures, the average consumer's heating bill is extraordinarily high. In effect, your heating/cooling bill can be as much or more than your mortgage payment.

Posted by LL | March 25, 2008 11:24 AM

Actually, the issue with ARMs isn't the variable rate, it's the fixed rate for the initial portion of the mortgage. People took down mortgages at a discounted upfront interest rate that they couldn't possibly have managed if the interest rate had been priced to market (either fixed OR floating) Day 1. Greenspan's point in advocating variable rate mortgages was simply that the average rate over the life of a variable-rate mortgage was likely to be much less than the fixed -- i.e., people were paying a lot for the insurance against market volatility.

(As a side note, probably interesting only to me, during the boom it was actually very difficult to find a 30-year variable rate mortgage. All the brokers were offering fixed product, or 3 fixed / 27 floating, but nothing that was outright variable from Day 1. Don't know if that's always been the case -- I only began house shopping 2 years ago.)

Posted by Rover | March 25, 2008 12:17 PM

Maybe I'm experiencing terminology confusion, but people aren't really having problems with adjustable rate mortgages right now are they? Interest rates haven't gone up (and for most people they are almost certainly below where they started). While ARMs certainly have a lot of possible risk, the actual risk has not materialized.

I think you are really worried about interest-only option loans. The problem with those is that people can get in with a low payment, but if they don't sell quickly the payment quickly escalates. Is that what you are talking about?

Posted by Sebastian Holsclaw | March 25, 2008 12:18 PM

Greenspan has a lot of fault in the current mess, but the 'Greenspan told people they should take ARMS' is not one of them. First, it's taking his statement out of context, and second, and more importantly, the people that are not money savvy, and thus did not understand the downside risk, and consequently should not have gotten within a furlong of a ARM, are also the same people who don't have a flying fig of clue of who Greenspan is. I mean, these are the same people on 'Jaywalking' who can't identify Cheney.

I fail to understand how otherwise financially illiterate people are also supposed to be CNBC junkies.

Posted by Kolohe | March 25, 2008 12:25 PM

Njorl, it really depends on the particulars of the situation, doesn't it? According to bankrate.com, a 30 year conforming fixed rate is lower than a 5/1 ARM today, so, yes, I think it would be crazy to take that deal. But the spread on jumbo loans is 3/4ths of a point, and if you expect that you'll move within 6 or 7 years, as most people actually do, it's probably better to take the ARM.

Posted by Thomas | March 25, 2008 12:38 PM

Again, I don't see where subprime mortgages are the problem. The problem is how they were then wrapped up into opaque securities that spread risk like a computer virus throughout the financial system.

Greenspan is definitely at fault for the real problem -- as well as for many other things. But then he'll probably pull a "Reagan" -- evade responsibility by doing the drooling, Parkinson's victim gig.

Posted by Don Williams | March 25, 2008 12:58 PM

"... if you expect that you'll move within 6 or 7 years, as most people actually do, it's probably better to take the ARM. "

Previously, people expected to move in 6 or seven years justifiably. If you're getting a jumbo loan now, don't expect to move in 6 or 7 years. Not voluntarily anyway.

The comparisson to make in that case is not fixed mortgage to ARM, but rather ARM to renting the home rather than the money.

Posted by Njorl | March 25, 2008 1:08 PM

"but nevertheless people respond to that Delphic oracle approach."

Wasn't the Delphic oracle notorious for giving prophecies so obscurely worded that generals would run off to their doom never realizing that they'd just been warned?

Of course Greenspan is notorious for giving bad advice so obscurely worded that he can weasel out of it years later - so maybe the Delphic oracle was a better bet.

Posted by Jinchi | March 25, 2008 2:31 PM

Tell me again why Hillary Clinton is the preferred presidential candidate of that other great oracle of economics, and self-described conscience of liberalism, Professor Paul Krugman?

Posted by Justin X | March 25, 2008 2:40 PM

Njorl, why do you expect moving patterns to change? I think there's obviously some temporary disruption in the housing market, but there's no reason to expect that, when prices hit the right level, we shouldn't again see people buying and selling. People buy and sell for all sorts of personal reasons--job changes and family changes being predominant. It sounds as if you expect people to no longer change jobs, get married, have children, have their children grow, etc.,

Posted by Thomas | March 25, 2008 2:45 PM

"It sounds as if you expect people to no longer change jobs, get married, have children, have their children grow, etc., "

No, I expect the real estate market to perform more poorly than before for a while. That means rising home values will no longer defray the fixed costs of moving, closing, taxes etc. The decision to move will have a higher threshold for more than a decade. Interest rates are going to rise, and people holding 5/1 ARMs will suffer. People who want flexibility should rent homes, not money.

Posted by Njorl | March 26, 2008 10:13 AM