New York Fed Chief Dudley Has An Idea — Homeowners Should Tap Into Equity

Great Greenspan's ghost, it reminds me of another Fed guy back in 'aught-four, story after the jump.

From MarketWatch, Jan. 17:

Increased consumption would be ‘positive development,’ Dudley says

New York Fed President William Dudley on Tuesday encouraged homeowners to find “prudent” ways to tap into the equity that has built up in the homes, saying the boost in consumption would be a welcome shot-in-the-arm to the economy.

The shape of household finances was a hidden strength of the economy, he said.

“The good news is that, while the current expansion is quite old in chronological terms, it is still relatively young in terms of the health of household finances,” Dudley said in a speech to the National Retail Federation.

“Whatever the timing, a return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to economic growth,” Dudley said.
Homeowners may have overlearned the lessons from the housing boom and bust, the New York Fed [resident said.

Even though home values have risen over 40% since 2012, housing debt has stayed virtually flat, he said.

“The previous behavior of using housing debt to finance other kinds of consumption seems to have completely disappeared,” and people are leaving the wealth generated by rising home prices “locked up” in their homes, he said....MORE

On January 21, 2008 we posted "Alan Greenspan: Competent Criminal or Criminally Incompetent?" done in the style of The Sting:

Cue the soundtrack:

Giorgio Mazzone 

"...all it takes is a little Confidence"**

And now, a tale of how a lot of folks with adjustable rate mortgages got stung:

The Set-up

"...American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

and

"Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages..."

-Alan Greenspan
Speech to the National Credit Union Association
February 23, 2004

The Score

The $ 3 Billon Payday In today’s Journal Gregory Zuckerman brings us news of the biggest one-year salary ever paid on Wall Street — that of hedge-funder John Paulson, who made somewhere between $3 billion and $4 billion last year. That’s right, between $3 billion and $4 billion. In one year. 

...Mr. Paulson made his pile by betting against the housing market at just the right time. Lots of people bet their money on a housing crash, but they were too early — his bets happened to coincide with a crash in the debt markets.

The Wall Street Journal's Wealth Report blog.
January 15, 2008

The Payoff

Greenspan joins hedge fund Paulson
Alan Greenspan, the 81 year-old former chairman of the Federal Reserve, is set to join the US hedge fund Paulson & C. as an adviser. 

Dr Greenspan will advise Paulson on the global financial markets, and under the terms of the agreement he will not advise any other hedge fund while he is working for Paulson.

Paulson manages $28bn of assets and last year earned billions of dollars when it called correctly the collapse in the sub-prime mortgage market, a collapse which was caused by Dr Greenspan who kept interest rates too low for long, according to some economic commentators....

The Telegraph
January 16, 2008

The Stinger

Anna Schwartz blames Fed for sub-prime crisis
..."There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says.

...She is scornful of Greenspan's campaign to clear his name by blaming the bubble on an Asian saving glut, which purportedly created stimulus beyond the control of the Fed by driving down global bond rates. "This attempt to exculpate himself is not convincing. The Fed failed to confront something that was evident. It can't be blamed on global events," she says.

Professor Anna Schwartz, co-author with Milton Friedman of
"A Monetary History of the United States"
The Telegraph
January 14, 2008

The End

*The Sting was based on a great sketch of human nature, The Big Con: The Story of the Confidence Man by David W. Maurer.
**tag-line from the movie poster.

On the other hand, there's a saying in the con world: "You can't con an honest man".