And Then the Roof Caved In

Chapter 11

And Then the Roof Caved In

 

 

 

“I don’t believe that number,” said Alan Greenspan. It was late 2005, and a staff member had just handed the Fed chairman a statistic he was sure was a mistake. “Who’s published that number?” asked Greenspan. “The sample must be wrong.”

The number in question detailed the percentage of mortgages that had been made in the United States that year that were subprime in classification. The number was 20 percent. “We knew that it was rising. But the whole [mortgage] market was essentially rising,” Greenspan told me when we met face-to-face in September 2008. He still sounded incredulous. “That it would be 20 percent of originations? It maybe got up to 11? Maybe. But 20?”

The numbers Greenspan had been shown that day were true. One in every five mortgages made in the United States was a subprime mortgage. For Greenspan, it was a huge revelation. “Everybody in retrospect now knows that the boom was developing under the markets for quite a period of time, but nobody knew it then,” contends the former Fed chairman. “In 2004, there was just no credible information on that. It wasn’t until we got well into 2005 that the first inkling that [it] was developing was emerging.”

It seems hard to believe. It’s not as if there weren’t countless anecdotes about home flippers in California and Florida and people who refinanced their mortgages once a year like clockwork, or that news of a housing boom wasn’t featured on the covers of countless magazines, in ...