With retirement on the horizon, it appears that Alan Greenspan has found time to put down the Aynn Rand and pick up the newspaper. "Eureka! Consumers are going into greater debt by borrowing against their homes to make disposable purchases. Not only that but the rise of housing prices which is enabling this spending spree is creating unsustainably high housing prices."

Anyone who has been reading the newspapers and looking at houses could have told him that. Interestingly Allan has been studying this issue since 1999 and only now, with retirement in sight, is he bothering to talk about it like its a problem. A huge problem, largely enabled by loose money in the banking system that the Fed (and Alan) is supposed to monitor and control...

Better late than never, i guess.

Greenspan Warns
Of Reliance on Housing Loans

His Own Analysis Stresses
Link Between Home Prices
And Consumers' Spending

By GREG IP 
Staff Reporter of THE WALL STREET JOURNAL

September 27, 2005

Mr. Greenspan's new data show that borrowing against home values added a stunning $600 billion to consumers' spending power last year, equivalent to 7% of personal disposable income -- compared with 3% in 2000 and 1% in 1994.
...
Mr. Greenspan's remarks were among his most extensive to date on the scope and risks of the rise in housing prices and mortgage debt in the past decade, developments to which his own policies have contributed. The remarks suggest that while in the near term higher energy prices may be the greatest threat to consumers, in the longer term Mr. Greenspan sees a cooling housing market as potentially more significant.
Last year's estimate of the value of "home equity extraction," as Mr. Greenspan calls it, was double the value of President Bush's tax cuts, as estimated by Brookings Institution scholar Peter Orszag. It's unclear how much of that home-financed borrowing was spent on goods and services, but Mr. Greenspan suggested it was about half.
...
Much of his speech, delivered by satellite to the bankers' meeting in Palm Desert, Calif., is based on a study he began in 1999 with Fed staff economist James Kennedy.