Barron’s Jim McTague had a chance to review one of only two existing copies of Greenspan’s 1977 NYU Doctoral thesis. Astonishingly, it focuses on Housing booms and busts.
• A discussion of soaring housing prices and their effect on consumer spending;
• An anticipation of a bursting housing bubble. Greenspan even wrote: "There is no perpetual motion machine which generates an ever-rising path for the prices of homes."
• A failure to anticipate a broader housing mania spilling into the general economy;
• Its doubtful anyone in 1977 could forsee the securitization process of subprime loans, including Greenspan. He did write, however, "a sharp break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building."
• The thesis shows the future Fed boss was focused on housing early in his career. Barron’s notes this casts doubt on his assertions about being surprised by the impact of this decade’s housing mania.
• In the introduction to Greenspan’s thesis, he noted that homeowners were refinancing for larger amounts than their original mortgage, in essence monetizing increases in their home’s market value and spending the excess cash on goods and services. This broke new ground in 1977, as the economic models at the time were not tracking this source of income.
Fascinating stuff, Jim . . .
Looking at Greenspan’s Long-Lost Thesis
Barron’s, APRIL 28, 2008