POP GOES THE WEASEL….The collapse of the home mortgage market, especially among subprime lenders who (until recently) have been eagerly offering risky variable-rate mortgages to questionable applicants, prompts a plea from Reed Hundt: “Help me, readers, find that quote where Dr. Greenspan recommended that everyone take more risks in the mortgages they assumed.”

Ask and ye shall receive. Here it is, in a February 2004 address to a conference of credit union executives:

Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade….American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

Oops. But the bigger question is, why did Greenspan make such an odd pronouncement? It’s not as if he wasn’t aware of the dangers of irrationally exuberant bubbles driven by over-optimistic lending practices.

Ben Wallace-Wells provided the likely answer in “There Goes the Neighborhood,” in our April 2004 edition. Writing at the height of the refi boom, he put it this way: “Quite simply, Greenspan is trying to keep a wobbly and fragile recovery alive — and using mortgage refinancing to do it.” In other words, he was desperate and didn’t have any other choice. Read the whole thing for a prescient look at the home mortgage market and what happens when bubble-icious financing schemes finally come crashing down.

For more, check out the New York Times here and the LA Times here. It ain’t pretty.

UPDATE: Here’s an even better Greenspan quote from April 2005. Inexplicably, a year’s reflection apparently made him even more bullish on subprime lending.