Why He's Meanspan

By Daniel Kadlec

Alan Greenspan was on an irascible roll last week, first dissing everyone who holds a fixed-rate mortgage--suckers!--and later picking on folks who collect Social Security: Get back to work, Grandma. In between, the chairman of the Federal Reserve Board scolded the big mortgage firms Fannie Mae and Freddie Mac, which make homeowning more affordable, for taking too much risk. In a couple of days' work, Greenspan went through sacred cows like an overzealous Atkins dieter.

Greenspan's most jarring rant was his call for Social Security reform. He wants to cut future payouts and delay the age at which people can collect. He would shrink future checks by indexing annual adjustments to an inflation gauge that runs a half point below the Consumer Price Index now used. He didn't offer a new retirement age, but 70 is a nice round number. (He's 78.)

In this election year, Greenspan is trying to force both sides to deal with massive economic issues. Social Security is slowly going broke, and Congress has dodged reform for decades. If we don't act, he said, we will face "one of the most difficult fiscal situations" in our history. Blame our ballooning budget deficit, which should surpass $500 billion this year. Greenspan's message: If we wish to make Bush's recent tax cuts permanent, we can't afford to do it with deficits. So Social Security needs to take a hit.

Greenspan's advice for homeowners and home lenders was just as bracing. The former are paying too much for the peace of mind of a fixed-rate mortgage, he chided. In today's low-rate market, owners should consider the riskier but cheaper adjustable-rate mortgage. That is, if Fannie and Freddie don't go bust. Greenspan warned that the heavy debt of these lenders poses a catastrophic risk to the banking system. That sent their stocks tumbling--making millions of investors poorer. Apparently, the Fed chief had it in for bulls too. --By Daniel Kadlec. With reporting by Adam Zagorin

With reporting by Adam Zagorin