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Atlanta Fed's Former President Jack Guynn Is The Original Housing Crash Prophet; Greenspan Was A CFTC COT Contrarian
As we were perusing the just declassified full 2004 FOMC transcripts, our attention was caught by two specific things in the December 14 uber-grouthink session. First, the original housing prophet is not Hoenig, not Lacker, and certainly no other Fed member: it is former Atlanta Fed president Jack Guynn, who prudently got out of dodge on October 1, 2006. Guynn was the first to point out, in the long ago days of 2004, that Fed policy could be leading to a massive housing bubble. Good thing the Maestro was more concerned about his misplaced dentures than to listen to voices of reason at the Eccles building. Yet speaking of the Maestro, we catch an amusing anecdote, in which it becomes obvious that none other than the Fed Chairman looks at the CFTC's Commitment of Traders reports to get an indication as to what may or may not happen to the relative strength of the dollar. When one considers this fact, and juxtaposes it with observation that the Fed runs the formerly free world, does it imminently follow that the people in charge are not brilliantly scheming and conspiratorial, but merely very, very, very dumb?
Here's Guynn:
The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy, which has been in place for some time. Those developments and the risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy.
I continue to be comfortable with the policy path we’re on. And barring some surprise, I judge that we still have a considerable way to go to get back to a more neutral stance. My concern is that, with a real fed funds rate that continues to be near zero, we could unintentionally be encouraging further imbalances in both the inflation environment and in the international sector. I hope we will not try to signal that we may soon pause in our removal of policy accommodation. Thank you, Mr. Chairman.
So much for further study and thought. While we can't fault Greenspan, the man was like 500 years old at this time, we wonder what vice-Chairman Geithner was doing when presented with these words of caution - aside from reading the tax code of the US from cover to cover of course.
An intersting tangent from Guynn, who we believe will shortly be making the talk show circuit very soon, is his observation that China's refineries are capable of processing sour crude, effectively lowering China's cost of oil relative to that of the US.
I was intrigued by an oil price observation from one of our New Orleans directors, who is a senior executive for one of the largest U.S. chemical companies. I had been under the impression that less-developed countries like China, because they are “energy efficiency disadvantaged,” would be relatively more hurt by the past rise of oil prices than the United States. However, this director related that, during a recent visit to China to discuss a new joint venture plant to produce an input to the manufacture of plastic goods, his staff couldn’t reconcile the financials that were being presented. The reason was that the energy price assumption in those projections seemed to be unreasonably low. To make a long story short, the Chinese were using oil prices that were about $10 less a barrel than West Texas intermediate crude. When queried about this, it seems that the refineries built in developing Asia over the last fifteen years were designed to process sour crude, which is presently trading at a price that is $8 to $10 below that of sweet crude. This means that the area has a temporary, as well as a potential absolute, energy price advantage. Sour crude is not in short supply. Moreover, U.S. plants can’t handle it. The story seems totally consistent with the discussion in the Greenbook of substantial differences in the prices of sour and sweet crude.
Well, we said it was a tangent, and it was news to us. The differential between sweet and sour has collapsed to about $2 now, but in case there is a shortage of sweet once more, guess who will have the upper hand.
What we found more curious is that none other than the Chairman of the Fed relied on such highly "deterministic" data as net speculative positions to evaluate relative currency strength. And he was quite the contrarian - during the late 2004 meeting, one of the primary concerns for the FOMC was the declining dollar, which eventually would hit a EUR low of $1.60 (about the time Goldman was finalizing its 2nd or 3rd currency swap with Greece). This proved to be a concern for a lot of the groupthinking directors. Here is the relevant dialog regarding this between Greenspan, Mand Kos:
MR. MADIGAN: I would note that our estimates of growth in foreign-held currency are actually still somewhat larger for this year than for domestic currency, despite the negative net shipments that Dino referred to. For instance, we are projecting that foreign currency is growing about 6¾ percent for 2004 as a whole, whereas domestic currency growth we estimate at about 4 percent.
CHAIRMAN GREENSPAN. So that suggests that there’s an unexplained significant residual. On the IMM traders report, to what extent are the net long and short positions useful in anticipating changes in rates? My presumption is that, historically, if there was a relationship, it disappeared as soon as somebody observed it. What are the facts?
MR. KOS. We actually did some work on this. Bob, do you remember the paper that we did a few years ago? December 14, 2004 7 of 118
MR. ELSASSER. I think the basic conclusion there was that those data do seem to have some predictive power, but they are released with such a long lag that they are not useful for traders on a real-time basis.
CHAIRMAN GREENSPAN. But there is other evidence that does suggest that, when everybody becomes absolutely committed to the view that a currency is going to move in one direction or the other, one can always make money on the other side of that transaction. At least that’s my recollection of history. But I guess since nobody knows what these data are in real time, one can’t make that statement.
MR. KOS. People do use these data sometimes as a contrary indicator—for the very reasons that you note.
CHAIRMAN GREENSPAN. But if they do see a relationship, it disappears.
MR. KOS. That’s the risk.
Pity Greenspan could not take his view on lack contrarianism as pertained to his monetary policy and do the opposite of what he and his henchmen would be suggesting.
As for risk, just as now there is a massive contraction of all risk indicators yet people are more skeptical about markets, at least intangibly, then ever before, so this appeared to be the case in 2004. Note the following exchange between Minehan and Kos:
MS. MINEHAN. With the possible exception of these positions vis-à-vis the dollar, there seem to be a remarkable number of indications—spreads are narrower, the yield curve is flatter, and so forth—that suggest that market participants see less risk. Yet the risks seem to be out there. We hear people talking about that all the time. Some of this betting against the dollar reflects the international risks having to do with the size of our deficit and the way the currency markets are going. There is a potential for markets to get upset about fiscal deficits going forward. There seem to be a lot of risks out there, but we don’t see it in the curves much. Do people talk about that at all?
MR. KOS. Yes. The short answer is yes. They have observed—especially over the last year —any number of things that should have and did create uncertainty. Yet there was this dichotomy where volatilities were low and spreads were low. So yes, there has been this dichotomy, and people talked about it. There’s a certain amount of frustration about it as well, I think, because it doesn’t make sense in terms of most people’s mental models of how these things work.
Yeah, those models sure turned out just A-OK.
We can't wait to see what the declassified transcripts of early 2010 FOMC meetings will have to say about precisely this issue. We just have to wait until 2016 to get them. Too bad by then the US will most likely exist in a materially different form from now.
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It's a conspiracy of the dumb, which is why it will fail so catastrophically, just like everything these assholes have attempted for the past decade at least.
I am Chumbawamba.
It's not that they're dumb. They're deeply religious. The study of Economics, as it is understood by the vast majority of academics is nothing more than a belief system masquerading as science. It claims to provide answers, through measurable, predictable forces.
And like religion, it is quick to proffer explanations ex post facto, but shows laughable results when attempting to explain what happens next.
Like most religious zealots, no amount of counterveiling evidence, logic or historic failings can move them from their chosen path.
What we have here in these transcripts is a meeting of the high priests. Even though there hundreds of examples of worry, uncertainty and surprise throughout the transcripts, never does the obvious question arise: that perhaps their chosen belief system might be fundamentally flawed?
+1
+ 2 :-)
Proppers of the status quo...
the proof is in the eating of the pudding
the dumpster ,, sold a home in seattle july 2007..
this idea that no one saw it coming ,
if a dumpster guy can see,,, then why can't a blue blood .?..
its all a tap dance .. fed based double speak ,
Great move Dumpster. I salute you!
hulk thanks my friend ,
the idea that know one saw it coming lol
I remember Schiller harping on it. FBI warned of massive Mortgage fraud back in 04.
It is laughable to say no one saw it coming...
The idea that no one saw it coming is the company line. It is cover, nothing more. If they admit they saw it coming they'd be liable. And they can't admit to being completely incompetent, either, so they say merely that "no one could see it coming (not even wise men like us)." It is an incredible dichotomy for them to get away with: "We are masters of the economy, and we failed miseably, but that fact in no way reflects on the viability of central planning, central banking or big government authority over the economy. We merely didn't have enough power, so if you give us more then all will be well." Interestingly, this is always the argument advanced by totalitarians of various stripes as to why their chosen form of government fails: not enough power, we didn't go far enough.
Excellent summation!
+ Titanic
My father spent the years 04 to 07 telling everyone that would listen that houses weren't worth what people were paying, he knew it was a bubble, and he is a complete layman financially.
The typical "I'm the one in charge,but you can't seriously expect me to know what's going on around here." cover line.
As we say about our Jack Russell.....she is so smart, she can play dumb....
Greenspan is no dummy.....I like this guy's explanation....let me know what you think.
http://www.roadtoroota.com/public/101.cfm
"I contend in this article that Alan Greenspan learned from Arthur Burns how the banking cartel stole the global monetary system from the people. This knowledge has been his lifelong obsession and he has finally devised a way back to the Gold Standard by orchestrating the pending destruction of the fiat money system."
+10^10^10
I agree. Greenspan is no dummy... And perhaps an Oscar caliber actor.
Interesting take. I must ponder the possibilities. That would be a tough pill for us Greenspan hating simpletons to 'swaller"
Not everything is as it seems.
Bix has some screws loose, but it's at least as entertaining as the DaVinci code.
Here's hoping it's all true...and then some bright chap works out what Rutherford did...
"For Mike's sake Soddy, don't call it transmutation. They'll have our heads off as alchemists!"
The problem with that thinking is that he's leaving it to the politicians in charge at the time the system resets to do it properly. I don't trust obama or congress with that task.
Could be. Could be, but... does it matter whether intentional or not, the same outcome will occur.
It's almost like saying that the wind that knocked down a tree and started the forest fire intended on the fire. Hindsight can produce a lot of (dis)credit.
The ONLY logical conclusion to our grow-or-die civilization is stagnation and then contraction. The SYSTEM can only briefly operate in a stagnation environment, and doesn't operate at all in a contracting environment (it only appears to, but it is actually falling apart as the contraction occurs). I'd like to think that these people all understand this and ARE (as this article suggests) trying to soft-land us; the problem is that there is such a greed mindset that it's tough to overcome those forces. Regardless of whether the rudder is actually steered, the ship will end up at the same location: enroute gold will be used to try and anchor growth; it may do so for a bit, but in the end, given greed and the scale of our infrastructure (in combination with dwindling natural resources), it too will fail in the end.
a quorum of 6 dumb assholes;
together making decision produces bullshit ,, not even bull shit . but dried wildebeest dung
"The problems that we have created cannot be solved at the level of thinking that created them."
Albert Einstein
Sorry, but that dung does in fact have meaningful value (mineral replenishment or fuel) :-)
LOL a pile of dung for your thoughts
Since most of the world is now aware of the fact the there really is no federal in the federal reserve, but rather it is run by and for the large banks that own it's shares and sit on it's board of directors, one wonders what motiviation the real owners have in promoting intelligent, independent and patriotic people to the board of governors. Yes I know that the president nominates and the congress approves, but as we have all learned money talks loudest in Washington. Academically smart, market and real world economy ignorant, and above all pliable. It all makes so much sense to me now.
Since most of the world is now aware of the fact the there really is no federal in the federal reserve, but rather it is run by and for the large banks that own it's shares and sit on it's board of directors, one wonders what motiviation the real owners have in promoting intelligent, independent and patriotic people to the board of governors. Yes I know that the president nominates and the congress approves, but as we have all learned money talks loudest in Washington. Academically smart, market and real world economy ignorant, and above all pliable. It all makes so much sense to me now.
Application for Federal Reserve Bank Stock
http://www.federalreserve.gov/reportforms/forms/FR_203020081001_f.pdf
I've repeated this post from a different thread. The elements of what I refer to as the PLAN seem to fit together.
The PLAN objective is this:
WORLD DOMINATION
The PLAN goes down something like this:
Feel free to fill in some of the blanks in the above strategy. This is a very well-crafted PLAN.
Is GS a sacrificial lamb and part of the PLAN? Or is Obama actually trying to break up the PLAN. The results will show. Keep your enemies close at hand. Be safe!
Personally, I think this is the plan:
1. Get hired as head of the Fed.
2. Give greedy bankers and corrupt politicians the rope needed to hang themselves.
3. Watch the people of the world freak out and string them up.
4. Smile as hard currency is taken up by the people with or without the help of government & bankers.
There is no plan.
There are only forces acting in their own short-term self interests.
Since the "people" are the weak force in the equation of centralized "anything", power moves from them towards the center.
Historically speaking, this trend typically continues until the people rise up and kill those at the center. During the "terror" phase of revolution, all bets are off. Power is typically completely up for grabs, and even those who were voices for change prior to the revolution are usually silenced or killed as well.
So we have that going for us.
Historically speaking, of course.
Surely they learned something from the end of the Romanovs?
Can't the extremely well-armed 99% make quick work of them?
You can itemize all you want, and it's a great list!, but globalization is dead. Without sufficient energy all attempts at "world domination" die. It looks good as a flowchart, but mother nature doesn't abide by flowcharts: the recent oil rig disaster in the US Gulf should be an example of big system failures (all systems fail, and the bigger they are the bigger they fail).
Collaborative effort should not be frowned upon, in which case any noble intention (such as limiting graft and corruption) is great, but the more power a system wields the greater the interest in abusing it.
They are neither dumb nor smart... they just do what they are told.
right o..
simply a copy machine . they get their instructions . copy them down and . regurgitate
Question is, does he know about the properties in Atlanta that couldn't be auctioned to the public(much less having prices disclosed)?
Second thought - what became of that secret list?
Great observation above. Napoleon himself said "never assume malice when simple incompetence will suffice." Insofar as Greenspan is concnernec read "panderer to power" to get what seems to me the plausible explanation. He was a Republican like me--i'd like to think an idiot unlike me. So sure, in the 90's he was "the maestro" as some are implying here. But he seems so far out of his league by the time the Iraq war and the raging "debates" (aka treason) were under way he simply was stuck in a more "peaceful world" which of course only resided in his mind. This country appears very fortunate to have had Hank Paulson as TS when it did. He informed the President (indeed even told Lehman "stop buying that crap") of the impending disaster long before it occurred and was informed something along the lines of "we've been waiting for this since 9/11/2001.) Hence, of course, $750 billion--although rather creatively executed by buying equity stakes in the banks rather than in truly "bailing them out" as is happening in Europe right now. I mock the Germans but obviously "they're no dummies." They know once a single dollar is dispersed that's the last they'll see of that. Can't say "blowing up Greece" was the right idea, though.
Come on now Georgie Porridgie:
"The country... fortunate to have Hank Paulson...."
Hank was one of the arsonists, who spotted the fire that he and his buddies started, then called the fire department (Congress), then stood back and watched his country burn to the ground.
The problem with belonging to a political party, is that you are supposed to follow the drum beat, however illogical, immoral, or untenable, otherwise you are not being an "onside kind of guy".
The Depublicans and the Remocrats (all) were bought and sold- even now before our very eyes, by the banking cartel, using money stolen from the middle class.
I would like to see the e-mails, the phone calls, and the private meetings held between Goldman and Hank, during his tenure as TS. None of those interactions will have been held for the purposes of helping the American people; only to how to engorge (or save the skin of) Goldman.
On top of the speculative housing bubble in Australia, the government has slapped a 40% tax on mining profits in that country:
http://news.yahoo.com/s/ap/20100502/ap_on_bi_ge/as_australia_tax
At least their bailout will be prepaid.
The problem with the previous Australian government was they frittered away $330bn+ in surpluses buying inflation (and elections).
I guess the argument with resources is that the raw material belongs to the country/population and if a company isn't happy with $Xbn in profits as opposed to $xbn there will be a company that will, or even as a last socialist resort a govt could mine a resource itself and reap the majority of profit. And with corporations there is the matter of which countries the profits end up.
It is not as though the demand for resources in the longest term is going to decline.
I think they just woke up and realized they'd leased the golden goose to China for a song.
It is not as though the demand for resources in the longest term is going to decline.
Actually it will... The reason is that of affordability, and of economies of scale. China will almost certainly back off their importing of coal as their overheated economy gets throttled down (the Chinese govt is currently wrestling with this, and is hellbent on doing so). This WILL result in less coal being exported from Australia. Less exports means decreased operations, which means less over-all efficiency, which then leads to price increases, which then leads to less demand...
In the 70s the Saudis were fearful that renewable energy would start taking off, thereby reducing oil demand. This resulted in them dropping the price of oil. Ah ha! you say, this proves your point- that demand then increased! Yes, but only for a while, for the mid-term. For it has allowed us to more rapidly deplete the oil reserves (refer to Jevons Paradox). In the long-term, and while people may wish otherwise- look back fondly on the abundant fossil-fuel-days, demand WILL decline because supply WILL decline. Prices will go up, but margins/profits won't be what people might expect (refer to reversal of economies of scale): it'll be an exponential decay, not a linear one.
For those with an interest;
March'10 Australian
Financial Stability Reviewhttp://www.rba.gov.au/publications/fsr/index.html
In 2000, I was offered a mortgage of $150k. In 2005, I began tracking the OTC derivatives market through the Bank for International Settlements. In early 2006, with the same average income, I was offered a no income verification mortgage of $1 million. I looked at the WaMu clown and told him he was out of his mind and walked out.
That's when I began writing people that a crash was inevitable, and pulled all my money out. I did not deserve a million dollar loan, I could not afford a million dollar loan, and the credit default swaps market was exploding because investors agreed with me. Everybody knew. EVERYBODY. The CDS market is incontrovertible proof.
Greenspan was the Fed puppet, like Kim Jung Ill is China's puppet.
Interest rates are the price of money. In the short run the Fed can have enormous impact, through credit creation (purchase or sale of IOU's) and the Fed rate (by edict). This leads to such perverse transactions as Mergers and Acquisitions founded on "nearly free debt". It does nothing for the economy (usually shrinking market players) but enriches a few.
This does not take a genius to figure- a child with pencil can figure many things work when the Fed says money is free.
But in the long run the Fed is impotent. Today, the Fed and Treasury are locked in the embrace of the "dance of death". If either of them misses a step (they are not Fred Astair and Ginger Rogers) they come crashing down.
Greenspan and the other Fed shills serve one purpose only- to protect the interests of the banking cartel. It is what is not on the record which speaks the loudest.
These people might as well be debating how many angels can dance on the head of a pin.
ZIRP has produced ZIG (thank you JR), but it has enriched those who produce Zero value for the country. How can trading worthless "synthetic" paper add to the wealth of the nation ? And please do not tell me that asset inflation is wealth.
Precisely. Having worked with central bankers. I can tell you. They are indeed very, very, very dumb.
Basically they are a bunch of radical Keynesian intellectuals who spend their day drinking coffee, commenting on politics and the Economist. Once or twice a week they sit down and read a copy of the lastest economic journals so as to stay "up to date". They never ever look at a Bloomberg terminal. In my opinion there was a deep rooted condescending attitude towards the market and market participants. In a way they think they are above everyday market fluctuations.
http://www.aeaweb.org/annual_mtg_papers/2006/0108_1300_1103.pdf
Three interesting results emerge from this decomposition of the STF’s. First, speeches do not
have a statistically nor economically significant impact on information flow. Second, by
contrast, there are statistically and economically significant effects before the release of
testimonies and FOMC meetings. Price volatility before the release of testimony or FOMC
meetings is higher by 58% or 97%, respectively, relative to the average price volatility. Third,
no effects are found after the release of STF's, though, as we will see, this result reflects the
coarseness of the measure of STF influence used in this section. Table 3 suggests two general
results concerning a two-way hierarchy of effects: (i) FOMC meetings > testimonies > speeches
and (ii) BEFORE > AFTER.