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3/2/2006 1:30:56 PM

Updated 02/24/06

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Is Greenspan ‘Wary’ of Housing Problems?
Even the major media have trouble agreeing just what the Fed Chairman said.

By Dan Gainor
June 10, 2005

     It’s easy to see why advanced economics confuses some people, especially when even the media don’t agree on what’s going on. Every time Fed Chairman Alan Greenspan has spoken in public, he has created more evidence of this problem.

     Greenspan’s June 9, 2005, testimony before the Joint Economic Committee of Congress resulted in typically mixed messages except on Wall Street, where the Dow Jones industrials rose 26.16 points to close at 10,503.02.

     In Washington, both The Washington Post and Washington Times agreed that Greenspan was “wary” of the housing situation.

     The Post led its Business section with the headline “Greenspan Wary of Risky Mortgages” atop a story about the meeting and a column about hedge funds. The main story followed with another cautious headline: “Price Peaks Built on ‘Exotic’ Loans Trouble Fed Chairman.”

     The Washington Times took the same position, warning, “Greenspan says beware of bubbles.” That article was the lead piece on the front page and included another caution about mortgages: “Fed chairman issues warning on home loans.”

     Both the Times and Post were technically correct. Yes, Greenspan did warn about housing loans, but he also made it clear that there is little worry over a national housing bubble. According to Reuters, “a ‘bubble’ in home prices for the nation as a whole does not appear likely,” said Greenspan. He did say there were “signs of froth” in some local markets, a quote he has used before that has been dissected a great deal. In other words, Greenspan thinks there is potential for problems in local markets, but not nationwide, despite the media feeding frenzy on the idea of a “housing bubble.”

     What Greenspan did warn about was recently popularized forms of home loans, especially interest-only mortgages. “The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern,” Greenspan explained, according to Reuters.

     Of course, the Post also included a mocking column by Dana Milbank that criticized “Greenspan's hedging and dodging.” However, Milbank did get to the heart of the problem facing the media by saying his comments “left his listeners to take what they wanted from his testimony.” As Milbank added, “At yesterday's hearing in the Rayburn Building, it was the best of times and the worst of times.”
Two major newspapers, USA Today and Investors Business Daily, saw the glass half full after Greenspan’s performance and responded with headlines quoting his reference to the economy being on “a firm footing.”

     USA Today headlined its business section with: “Fed chief cites reasonably firm footing.” And Investors Business Daily was even stronger, leaving out USA Today’s “reasonably” qualifier: “Greenspan Says U.S. Is On A Firm Footing; More Fed Hikes Ahead.”

     In this case, USA Today was using the more accurate quote. According to Reuters, Greenspan said: “The U.S. economy seems to be on a reasonably firm footing, and underlying inflation remains contained.” That’s not quite as upbeat as the IBD headline indicated by leaving out “reasonably.”

     Still, upbeat is a fairly accurate way to describe the session. Here’s Greenspan on the whole economy: “Despite the uneven character of the expansion over the past year, the U.S. economy has done well, on net, by most measures.”

     Both The New York Times and Wall Street Journal reported the Greenspan testimony as murky. The Times had a front page story with a headline hinting at their conflict: “Mortgage Rates Defy Fed and Delight Consumers.” On the front page of the Business section, they followed up with the generic “Greenspan Says Fed’s Work Not Yet Done,” as if the Fed’s work is ever done.

     The Journal was the only paper that buried the main story about the congressional testimony inside the paper, on page A4. That piece was headlined: “Fed Chief Signals Rates Still to Rise.” A smaller headline followed with both good and bad news: “Greenspan Says Economy Has Left Soft Spot Behind, But Notes Housing Risk.” The Business section stock market story for the day indicated surprise the markets were doing well after the hearing: “Blue Chips Rise Despite Greenspan Testimony” but warned, “Fed Chairman Indicates No Plans To Stop Raising Rates Soon.”

     Over at Reuters, they also included a good bit of what Greenspan had to say, for readers to decide for themselves: (click here)


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