Posted by David Bernstein:
Greenspan's Testimony Today:
http://volokh.com/archives/archive_2008_10_19-2008_10_25.shtml#1224797890
Greenspan was asked today when he realized there was a housing bubble.
His answer was early '06, long after other observers had recognized
that the unprecedented increase in housing prices, unconnected to any
fundamental factor beyond easy credit, had created a bubble.
Even more surprising, Greenspan explained that even after he realized
there was a bubble, he never expected housing prices to decline so
dramatically, because we had never had a nationwide decline in housing
prices in the past. I'd heard Greenspan say this before, but I'm
surprised he wasn't embarrassed to repeat it. Didn't he ever read a
mutual fund prospectus ("past performance does not guarantee future
results"). More to the point, given that the level of increase in
housing prices, both nationwide and in specific markets, was
unprecedented, why would anyone sensible look to precedent in
determining to what extent prices may fall?
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