Greenspan’s Long-Lost Thesis

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.

Some highlights:

• 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

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What's been said:

Discussions found on the web:
  1. VennData commented on Apr 27

    Greenspan, yet another Reagan legacy.

  2. Samuel13 commented on Apr 27

    Why do people think these people are stupid/ignorant? They know exactly what they are doing. Bush, Greenspan, Bernanke et al…
    Any person w/ an Econ 101 class can figure out their assertions and policies are asinine. They have a hidden agenda (ie re-election, globalization, making rich people even richer ……). Mr. Bush has repeatedly said one thing and done the opposite behind closed doors. Ex. Bush/Bernanke continually claim that college education is a must, yet they discontinued the student loan subsidy. They claim free trade yet enforce a 54 cent sugar tariff. The world sugar price is 14 cents/lb, but Americans pay 54 cents/lb.

  3. Steve Barry commented on Apr 27

    As I said months ago, and I see is now becoming very popular, Greenspan will soon replace Jimmy Carter for the title “History’s Greatest Monster.”

  4. Thomas Shawn commented on Apr 27

    “yet they discontinued the student loan subsidy.”

    This is a good thing. They should end all federal student loans as this is contributing to the education bubble.

  5. Big Al commented on Apr 27

    It’s alright to have a theory about what will happen. But it’s nice to run the experiment and see if you are right.

  6. Ross commented on Apr 27

    I swear that after this post, I will NEVER discuss Greenspan EVER.

    The last bullet point about Greenspan’s revelation regarding mortgage money used for personal consumption breaking new ground is simply false.

    Mortgage debt for non-real-estate purposes long pre-dates Greenspan’s 1977 thesis. The series from the Dept. of Commerce goes back to 1947!

    It is true that the series did not turn positive (IE: excess money withdrawn) til 1960 and then only to the tune of a whopping $100 million. By 1970, the annual amounts were close to $17 billion.

    The term I coined in 1971 was MD for non RE P. The Housing and Urban Development Act of 1968 prompted the Conference Board to do a series of studies about the potential problems of mortgage money being used for general household purposes.

    In 1972, the Conference Board wrote an 83 page booklet (report no. 548) authored by Bernard Gelb which addressed the problem. I still have a copy.

    Greenspan was/is a fraud and to attribute his stunning 1977 denouement regarding mortgage debt is absolutely wrong.

    IF, on the odd chance Greenspan was aware of the potential for a looming crisis, he failed his duty by not re-reading his very own thesis.

    There will always be revisionist historians. It’s an ego thing. And yes, Mussolini made the trains run on time…

  7. ferd mertz commented on Apr 27

    what makes anyone believe he wrote it? read the jeremy grantham comments at on the mediocrity of greenspan. marc faber has a great article “financial implications of reflation” at with some pointed comments about greenspan’s miserable record on wall st. in the 1970’s. amazing to consider how long monetary policy was set by a bumbling seller of financial advice with a lousy track record

  8. John Wellman commented on Apr 27

    Educational Inflation! A major theme that seems to have been glossed over for many years. More universities, fewer tenured professors, more associate professors. More students, more garbage degrees (fluff vs. engineering, science, econ, etc) Does it strain logic to realize why the average American with their “normal” education fails to provide employers with an incentive to pay them well? The fact that college degrees nowdays are more about fashion statements than substance indicates to me that the most insiduous form of inflation is education inflation. We pay ever more money to graduate with degrees that return less benefits and pay. Leverage is powering the educational sector, but the personal yield derived from such leverage long ago fell below monetary inflation rates(not to mention productivity required to keep employers happy to pay good benefits) This mess is huge, and unfortunately it also attacks the foundation of the liberal left. Promotion of education as the highest of pursuits is well intentioned, and knowledge is vital, but not when the yield cannot keep up with inflation, or exceed it as it should.

  9. Chuck commented on Apr 27

    The new agenda for this newly elected President is to tax the wealthy to death deprive them of most of their wealth and use their funds to buy all foreclosures and stimulate the economy. We are greedy nation of wealth and corruption, they need to read the bible every now and than instead of looking out for their own greedy selves

  10. Eric Davis commented on Apr 27

    I always thought the thesis was about how the fed chairman has to give away free money to make everyone happy, so he doesn’t get fired, because if he doesn’t congress will find someone who will….

    Till there is a MASSIVE problem with inflation… and we need a “tough fed chairman”.

    We are idiots, and are caught in this cycle as a collective consciousness…. and we probably always will be, unless it destroys us.

  11. John Thompson commented on Apr 27

    These guys are political appointees. When a bubble can be created they will create one. There was no other quick fix on the economy that wouldn’t derail “Globalization”.

    What amazes me during my adult lifetime at nearly 40 now is how hopelessly controlled and disconnected people are when it comes
    to Plutocracy.

  12. rickrude commented on Apr 27

    Bush and Kudlow somehow also belong
    in this list of idiots

  13. jombi commented on Apr 27

    I have a quick question.. Thought :’
    Are any countries coordinating to understand the scope of population growth in the world. I am simply amazed at how many people are packed into Silicone Valley. Soo many apartments. No homes…. Just people packed jam tight. No matter what time you go to the grocery store or wally-world the lines are packed. And it is interesting to note that I always see the most poorest families w/ 3-4 kids..

    Sometimes I feel like if we had a population growth spokesperson in office that would make things a lot better.. No one talks about it. If you or food stamps can afford it just pump them out…..

  14. Shane commented on Apr 27

    Greenspan actually wrote a paper back in the 70s saying that we should go back on the Gold Standard . . . he was actually a proponent of gold backing the currency!

    Fascinating what happens to people when they get put in positions of power.

  15. sunsetbeachguy commented on Apr 27

    Education inflation comments are probably being made by Boomers who got their degrees when they were nearly free from highly state sponsored institutions.

    Now that they have had theirs and gorged at the trough, more more for anyone else.

    The Worst Generation Ever!

    One more log on the inter-generational warfare bonfire.

  16. Jon H commented on Apr 27

    1977? Late bloomer?

  17. Jon H commented on Apr 27

    The 1977 PhD was about the time he finished working in Ford’s CEA.

    I wonder if it was a political-connection freebie…

  18. Lindsay commented on Apr 27

    The “education bubble” — seriously?

  19. Winston Munn commented on Apr 27

    Who’da thunk that Ayn Rand was so alluring as to turn Practical Al into Bubble Al?

    I guess beauty is somewhere other than in the eye?

  20. Ross commented on Apr 27

    OK, one more on the sophistication of Sir Allen Greenspan.

    A friend was sitting at a table in an upscale and popular D.C. restaurant last week and Greenspan and his publisher were at the table next. He swears he heard Alan order the steak tatare………medium well.

    OK, I made that up but I’m running low on tonic water. Looks like martoonies for the balance of the evening.

  21. Francois commented on Apr 28

    “Leverage is powering the educational sector, but the personal yield derived from such leverage long ago fell below monetary inflation rates(not to mention productivity required to keep employers happy to pay good benefits)”

    You are assuming that all employers know a good employee when they see one. Sorry, but they are humans like everyone else. They screw up, put processes before outcomes, and quite a few of them appreciate more a brown-noser than a good employee that’ll tell it like it is. Because often times, telling it like it is can be unpleasant.

    Just ask Tanta, she’s got great anecdotes about that.

  22. Francois commented on Apr 28

    There is a bubble in education? If you mean there is an inflation of hocus-pocus credits and degrees, I’ll buy that.

    Sure thing is, there is inflation in the cost of education. The Chinese and Indians are laughing real hard at us for doing that.

    Somehow, they have this weird idea of looking for the very best and provide them with inexpensive and hassle-free money to access higher degrees. The Indian Institute of Technology is a very good example of that approach. 2% admission rate, tuition and board for 700 USD per year, (free for low income students, of course) and look at the number of their graduates that went to build great corporations.

    Of course, there is not a chance in hell we would do such a logical thing here. Saddle them with a load of debts, (that can’t even be liquidated in a bankruptcy) basically forcing the graduate to look for the biggest bang for the buck. Whole sectors of the economy lose great candidates that would prefer to work there, but, hey, money talks and we walk…toward the cliff.

    We can still avoid the worst, but we’ll need to get real, and fast.

  23. weinerdog43 commented on Apr 28

    John Wellman, this is an economics blog. Rush Limpbaugh approved diatribes about scary ‘Libruls’ are mostly laughable. The title of this piece is ‘Greenspan’s Long Lost Thesis’. He was appointed by Reagan, not Jimmy Carter. Carter appointed Paul Volcker.

    Guess which ex-Fed Chairman is respected.

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