UNCLE AL SCREWS UP AGAIN

I thought that the low Fed rates set by Alan Greenspan for so long served to reduce mortgage rates and THAT's his role in the creation of the Big ShitPile. There's more to the story. According to FRBNY, the discount rate was under 2% from 11/6/2001 until 1/9/2003, the federal funds rate was under 2% from 11/6/2001 until 11/10/2004. This meant that the returns on Treasury bonds and bills was also very low. These low rates caused investment managers to look for better returns and that's another reason the Big ShitPIle was created.

From This American Life, 5/29/2008:

Alex Blumberg: So, this is where we have to talk about Alan Greenspan, right?

Adam Davidson: We have to.

Alex Blumberg: Alright. But I'm going to promise the people here that this is the last time you're going to hear Alan Greenspan in this story. So bear with us.

Adam Davidson: Here is one of his speeches that really drove that army of investment managers crazy.

Alan Greenspan: The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance.

Adam Davidson: You might not believe me, but that little statement: that is Central Banker speak for “Hey, global pool of money - screw you.”

Alex Blumberg: Come on, that’s not what he said

Adam Davidson: It is! I speak central banker and that’s what he’s saying. What he’s technically saying is he’s going to keep the Fed Funds rate at the absurdly low level of one percent. It tells every investor in the world: you are not going to make any money at all on US treasury bonds for a very long time. Go somewhere else. We can’t help you.