Greenspan was asked today when he realized there was a housing bubble. His answer was early '06. That's long after other observers (including your friendly neighborhood blogger, e.g.) had recognized that the unprecedented increase in housing prices, unconnected to any discernable fundamental factor beyond easy credit, had created a bubble.

Even more surprising, Greenspan explained that even after he realized there was a bubble, he never expected housing prices to decline so dramatically, because we had never had a nationwide decline in housing prices in the past. I'd heard Greenspan say this before, but I'm surprised he wasn't embarrassed to repeat it. Didn't he ever read a mutual fund prospectus ("past performance does not guarantee future results"). More to the point, given that the level of increase in housing prices, both nationwide and in specific markets, was unprecedented, why would anyone sensible look to precedent in determining to what extent prices may fall? In fairness, Greenspan was hardly alone in this particular idiocy, joined most prominently by the CEO of Freddie Mac.