Yes, Alan, it’s called “outcome bias.”
Another one: “I’ve always argued that you do not capitalize the value of a piece of real estate…with overnight interest rates.”
Greenspan is right, of course, if housing activity was driven by overnight rates it would be boom times for real estate now.
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You said it, jck. While at RealMoney, I was a constant critic of that, and of Greenspan’s espousal of the virtue of ARMs during the great moderation. For those with access to RealMoney, I published this piece in mid-2005, which said the end to housing bubble was coming, and that the period of buying real estate with short dated financing was coming to an end.
Real Estate’s Top Looms http://www.thestreet.com/p/_rms/rmoney/davidmerkel/10224469.html
David
Good point, but low teaser rates were a marketing ploy, it doesn’t change the fact that “you do not capitalize the value of a piece of real estate…with overnight interest rates” something that the “bankers” if not the public should have known.
Obviously low overnight rates didn’t cause the entire problem, but they did facilitate one piece of the problem – low initial teaser rates. The originating lenders were able to offer the first six months of a loan at 1% or 2% because they were funding the loans with the low overnight rate money. As the teaser rate burned off they pooled and sold the loans. Those low teaser rates couldn’t have happened if short term rates were higher, and without the low teaser rates many of the worst loans wouldn’t have happened.