Atlanta Fed President Jack Guynn called the housing bubble in 2005

Jack Guynn, Atlanta federal reserve bank President, expressed concerns about the housing bubble in 2004 and presented evidence in 2005. Alan Greenspan did nothing.

Irvine Home Address … 68 WOODLEAF Irvine, CA 92614

Resale Home Price …… $270,000

I tried to warn you somehow

You had your way

Now you must pay

I'm glad that you're sorry now

Connie Francis — Who's Sorry Now?

As Alan Greenspan guided the economy into the abyss, some voices both inside and outside the inner sanctum warned Greenspan of impending disaster. I wonder if Greenspan is sorry he didn't listen?

There were many people who saw the housing bubble for what it was. Many readers of this blog chose not to buy when others lost their senses. Though they may lack the resources of professional economists at the federal reserve, but many people inside and outside the industry pointed to problems that culminated with the housing bubble.

Few insiders with positions of power and influence saw the housing bubble. One notable exception is Jack Guynn, former president of the Atlanta federal reserve bank (not Fred Guynn the actor that played Herman Munster.)

Atlanta Fed's Former President Jack Guynn Is The Original Housing Crash Prophet

As we were perusing the just declassified full 2004 FOMC transcripts, our attention was caught by two specific things in the December 14 uber-grouthink session. First, the original housing prophet is not Hoenig, not Lacker, and certainly no other Fed member: it is former Atlanta Fed president Jack Guynn, who prudently got out of dodge on October 1, 2006. Guynn was the first to point out, in the long ago days of 2004, that Fed policy could be leading to a massive housing bubble. Good thing the Maestro was more concerned about his misplaced dentures than to listen to voices of reason at the Eccles building. Yet speaking of the Maestro, we catch an amusing anecdote, in which it becomes obvious that none other than the Fed Chairman looks at the CFTC's Commitment of Traders reports to get an indication as to what may or may not happen to the relative strength of the dollar. When one considers this fact, and juxtaposes it with observation that the Fed runs the formerly free world, does it imminently follow that the people in charge are not brilliantly scheming and conspiratorial, but merely very, very, very dumb?

Here's Guynn:

The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy, which has been in place for some time. Those developments and the risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy.

I continue to be comfortable with the policy path we’re on. And barring some surprise, I judge that we still have a considerable way to go to get back to a more neutral stance. My concern is that, with a real fed funds rate that continues to be near zero, we could unintentionally be encouraging further imbalances in both the inflation environment and in the international sector. I hope we will not try to signal that we may soon pause in our removal of policy accommodation. Thank you, Mr. Chairman.

So much for further study and thought. While we can't fault Greenspan, the man was like 500 years old at this time, we wonder what vice-Chairman Geithner was doing when presented with these words of caution – aside from reading the tax code of the US from cover to cover of course.

The 2005 transcripts have just been released.

The FOMC Debates the Housing Bubble in 2005

by CalculatedRisk on 1/14/2011 04:05:00 PM

The Federal Reserve just released the transcripts of the FOMC meetings in 2005. This will take some reading, but the June meeting was focused on housing. From then Atlanta Fed President Jack Guynn:

[T]there is the housing situation, which we talked about for a long time yesterday afternoon. As I’ve been reporting for several meetings, some of our markets, especially those in coastal areas of South Florida and the Florida panhandle, are experiencing a level of building activity and price increases that are clearly, in my view, unsustainable. Nearly every major Florida city now has experienced increases in the double-digit range, and some, like Miami, Palm Beach, Sarasota, and West Palm, have been reporting increases in housing prices on a year-over-year basis of between 25 and 30 percent. While our discussion yesterday did not seem to indicate a consensus on a national housing bubble, based on past experience I’m reasonably comfortable characterizing the housing feeding frenzy in some of our markets as being a bubble or a near bubble. For example, the number of major projects planned or under construction in Miami now totals 114, most of which are high-rise developments. That includes 61,000 condo units—eight times the number that were built in the last decade—and a total of 100,000 new parking spaces. I know we don’t have any process for introducing exhibits into the record, but I’d like to pass Dave Stockton this pictorial of the new projects in Miami, so that he can continue to worry a little bit along with me. [Laughter] My supervision and regulation staff thinks this is an accident waiting to happen in our area. And while the local market excesses probably do not represent systemic national risk, the shakeouts could have serious regional consequences. My bank supervision staff points out that housing-related credit risks to our bank lenders are not so much from defaults on permanent mortgage financing that we talked about yesterday, but rather from lending for land acquisition, development, and construction. The ugly picture we have seen before—and that they think we may very likely see again before long—goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them saleable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it’s because of where I sit, but I am less comforted than some of my colleagues about the housing situation. … CHAIRMAN GREENSPAN. Let’s take a break for coffee.

Here are the presentation materials for the June meeting with plenty of graphs on housing.

Jack Guynn strongly suspected there was a housing bubble in 2004. He sets a team of researchers on the problem, and the results showed there was clearly a problem. He correctly foresaw the collapse of the high-rise markets in Miami, Las Vegas, and Orange County. What did Greenspan do? Nothing.

For those with historic interest on the housing bubble, the complete text of the Great Housing Bubble is available on as a PDF on the right sidebar, and the online version is available by clicking on the bookshelf below or in our library.

Ponzi Squatter

Living as a Ponzi was common during the housing bubble. Those that flamed out are squatting in their broken ATM machines.

  • The owner of today's featured property paid $207,500 on 3/15/2002. He used a $186,542 first mortgage and a $20,958 down payment.
  • On 7/29/2003, he obtained a $55,400 stand-alone second.
  • On 12/3/2004 he refinanced with a $290,000 Option ARM with a 1% teaser rate.
  • On 9/16/2005 he obtained a $40,000 stand-alone second.
  • On 11/1/2007 he refinanced with a $360,000 first mortgage. It looks like he paid for about a year.

Foreclosure Record

Recording Date: 02/10/2010

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 07/22/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/17/2009

Document Type: Notice of Default

Total mortgage equity withdrawal is $173,458. That plus two years of either squatting or rent skimming is this owners compensation for a ruined credit score. I think the borrower got the better end of the deal.

Irvine Home Address … 68 WOODLEAF Irvine, CA 92614

Resale Home Price … $270,000

Home Purchase Price … $207,500

Home Purchase Date …. 3/15/02

Net Gain (Loss) ………. $46,300

Percent Change ………. 22.3%

Annual Appreciation … 2.9%

Cost of Ownership


$270,000 ………. Asking Price

$9,450 ………. 3.5% Down FHA Financing

4.79% …………… Mortgage Interest Rate

$260,550 ………. 30-Year Mortgage

$54,577 ………. Income Requirement

$1,365 ………. Monthly Mortgage Payment

$234 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$45 ………. Homeowners Insurance

$414 ………. Homeowners Association Fees


$2,058 ………. Monthly Cash Outlays

-$127 ………. Tax Savings (% of Interest and Property Tax)

-$325 ………. Equity Hidden in Payment

$17 ………. Lost Income to Down Payment (net of taxes)

$34 ………. Maintenance and Replacement Reserves


$1,657 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$2,700 ………. Furnishing and Move In @1%

$2,700 ………. Closing Costs @1%

$2,606 ………… Interest Points @1% of Loan

$9,450 ………. Down Payment


$17,456 ………. Total Cash Costs

$25,300 ………… Emergency Cash Reserves


$42,756 ………. Total Savings Needed

Property Details for 68 WOODLEAF Irvine, CA 92614


Beds: 2

Baths: 1 bath

Home size: 1,060 sq ft

($255 / sq ft)

Lot Size: n/a

Year Built: 1983

Days on Market: 7

Listing Updated: 40553

MLS Number: P765314

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Ad


Very lovely condo in Woodbridge area. Down stairs home with enclosed patio and storage. Light and Bright end unit. Master bedromm with walk in colset. A larege community park, play ground and swimming pool with spa.

bedromm? colset? larege?

Enjoy your holiday!

15 thoughts on “Atlanta Fed President Jack Guynn called the housing bubble in 2005

  1. winstongator

    We do ourselves a disservice by having the fed operate how they do. There are smart people there -not all of them, but there are many in that organization. Mistake one is (was) the policy of unanimity at the Fed. Dissenting voices (unless they’re calling for higher interest rates right now) don’t get heard by the general public. The second mistake, which is nearly as bad, is the opacity. Why are we just now getting minutes of meetings from 5 years ago.

    Remember what some people believed in the late summer of 2008:
    1. Subprime’s contained
    2. There won’t be a recession (even though we were already in one)
    3. The banks are healthy (Lehman’s BK and stock collapse was fairly precipitous)

    What would having heard dissenting fed voices for 2 years have changed? Maybe a little more than a weekend’s prep for the largest bankruptcy in US history? More than an ad-hoc bailout of AIG?

    Maybe it would have taken some fuel out of the late bubble in late 2006/2007 when there was still crappy lending at inflated prices?

    Changes at the fed are things that can happen, but it seems like these are not the changes many are looking for, instead you get those stoking fears of hyperinflation.

  2. scottinnj

    “Let’s take a break for coffee” – I’m thinking that is in the running for quote of the decade.

    The best takedown I’ve read on Alan Greenspan comes from Matt Taibbi’s book – Griftopia. Here is the (PG-13 rated version) of the first two paragraphs of the chapter entitled “The Biggest ***hole in the Universe” just to give a flavor of the discussion:

    “Bad political systems on their own don’t always make societies fail. Sometimes what’s required for a real social catastrophe is for one or two ingeniously obnoxious individuals to rise to a position of great power–get a once-in-a-billion ***hole in the wrong job and a merely unfair system of government suddenly turns into seventies Guatemala, the Serbian despotate, the modern United States.

    Former Federal Reserve chief Alan Greenspan is that one-in-a-billion ***hole who made America the dissembling mess that it is today.”

    I really recommend this book (along with Bailout Nation by Barry Ritholtz and of course The Great Housing Bubble)

  3. jb

    Alan Greenspan was enraptured by the idea of the invisible hand. This idea turned into the invisible hand-out…oops. Glass-Steagall should not have been repealed & unregulated bets should have been allowed to die a natural death. Alan Greenspan was incredibly, self-righteously lazy about our entire crony-capitalist system. And anyone who disagreed was studiously ignored.

    1. .

      it wasn’t laziness.

      greenspan made a conscience decision to not interfere with free markets and not interfere with the housing bubble. he assumed that a free capital market would work itself out and not implode. there’s almost always bubbles and the majority of them don’t need government intervention. so his decision was not completely irrational.

      he had ultimate faith in the free market system and he later admitted his faith was misplaced and he was wrong. he also admitted there should be heavier regulation. in his speech he referred to how painful it was to realize his 50 year (or however long) held belief in the system was ultimately wrong.

      1. Laura Louzader

        How could Greenspan not realize that the “free market” he had faith in was no longer a free market?

        Is something what we call it, just because we call it by a particular name? We have become so careless in our use of language that it has clouded our thinking and deprived us of the ability to form reasoned judgments based on the evidence before our eyes.

        The credit and housing markets of 1995-present were so rigged in favor of speculation and debt accumulation by government policies and federal housing programs and agencies chartered to buy loans that would not otherwise be written, by federal buyer “affordability” programs, by direct and indirect subsidies of all sorts for buyers and builders ,and most all by implicit guarantees of government support for lenders and the GSEs should things go against them, that it is unbelievable that anyone could conceivably call this a “free market”.

        It has always looked to me like Greenspan reverted directly to his Keynesian roots after separating himself from Ayn Rand, while using the term “free market” as a charm to deflect criticism of his policies.

        But then, government intervention in the economy in any form, and the use of monetary manipulation to steer markets in a particular direction is a violation of free market principles, and in fact puts the carriage in front of the horse and destroys the “feedback” that would help the markets correct themselves. It is the absolute opposite of a free market, and referring to it by that term does not change its nature.

        1. matt138

          thank you.

          greenspan’s writing in Rand’s “capitalism the unknown ideal” is sound. “gold and economic freedom” was the title of his writing.

          only knowing of him in recent decades, i couldnt believe he actually wrote that piece the first time i read it.

          he joined the boys club in washington and his principles flew out the window. traitor.

  4. IndieDev

    Was Greenspan wrong? The market is correcting according to market forces. In fact, it’s Government intervention that seems to keep the market from correcting completely.

    1. matt138

      many blame deregulation and simultaneously ignore the various forms of subsidy and resulting distortion. then they simplistically flog the free market.

      low low fed funds rate is the source of the extreme imbalance. if an entire economy is fueled by artificially low interest rates, there is NO free market.

      greenspan in the 60s was quite intelligent. unfortunately, decades later political will made him a monster.

      Intervention is crushing a true recovery. Yet, we keep blaming the free market.

      1. ttu

        No we should don’t blame the free market for being in the dumps today. We should blame the lack of regulation and enforcement of laws for the the free market being in deep trouble today.

        The issue at hand is to create a fair market system which prevents abuse and breaking the law. No sane person wants to spend time to intervene unless it is necessary. But a free for all which invites short term risk taking has consequences long term. For everyone; including the ones who trust the free market.

        Capitalism works if everyone has an incentive to favor very long term interests. Our system is set up to do exact contrary right now. That’s why everyone looks the other way when they see obvious bubbles.

  5. alan

    Getting back to renting… Am I wrong is the rental value on this tiny, 1st floor apartment about $1,350/month. The furnishings are truly sad for home that ‘cost; $360K.

  6. scottinnj

    Why do people hate banks – example #25,124

    One of the nation’s biggest banks — JP Morgan Chase — admits it has overcharged several thousand military families for their mortgages, including families of troops fighting in Afghanistan. The bank also tells NBC News that it improperly foreclosed on more than a dozen military families.

    The admissions are an outgrowth of a lawsuit filed by Marine Capt. Jonathan Rowles. Rowles is the backseat pilot of an F/A 18 Delta fighter jet and has served the nation as a Marine for five years. He and his wife, Julia, say they’ve been battling Chase almost that long.

    The dispute apparently caused the bank to review its handling of all mortgages involving active-duty military personnel. Under a law known as the Servicemembers Civil Relief Act (SCRA), active-duty troops generally get their mortgage interest rates lowered to 6 percent and are protected from foreclosure. Chase now appears to have repeatedly violated that law, which is designed to protect troops and their families from financial stress while they’re in harm’s way.

    A Chase official told NBC News that some 4,000 troops may have been overcharged. What’s more, the bank discovered it improperly foreclosed on the homes of 14 military families.

  7. jb

    When I mentioned that Greenspan was lazy, I was giving him the benefit of the doubt. He said recently that although he has a PhD, he never really understood the derivatives market. I find this highly suspect. When I read about credit default swaps last year, I was pretty horrified. It was like a giant craps game. When I asked someone who knew about that market how Bear Sterns, etc..priced those things, he told me, “Those financial models weren’t as complicated as you would think. They were pretty basic.”

    The market had grown to over $60 trillion in ’06, and the Chairman of the Fed didn’t understand it? He opposed regulating it in any way? I don’t really buy it, but I’ll say that he was lazy. If he didn’t understand it, then why not find people who do and find out more about it? It took the movie “Inside Job” about 2 minutes to give an overview of the CDS situation. The man may be sorry, but he was either poorly suited to the job, or was completely corrupt.

  8. EconE

    If they just “declassified” this information, imagine what they’ve been talking about for the last 2-3 years but aren’t telling us.

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