“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
-Alan Greenspan, former Federal Reserve Chair
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Yes, Alan, its true: Ideology destroys the once great. Our leaders need to occasionally verify that their world view is still valid. Eventually discovering the errors of their ways after the fact is of little help.
"Critics, including many economists, now blame the former Fed chairman for the financial crisis that is tipping the economy into a potentially deep recession. Mr. Greenspan’s critics say that he encouraged the bubble in housing prices by keeping interest rates too low for too long and that he failed to rein in the explosive growth of risky and often fraudulent mortgage lending.
“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
"FLAW" — we are only 7 years into the 21st C, and we already have a leading candidate for the understatement of the century.
I’ll give Greenie this much credit though: If any Republican had the motive and the opportunity to blame the housing boom/bust and credit freeze on Fannie & Freddie, it was former Fed Chairman Alan Greenspan. In his contrition, he has become especially honest:
"Many Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies that were placed in a government conservatorship last month. Republicans have argued that Democratic lawmakers blocked measures to reform the companies.
But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”
“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,” he said."
The majority of securitization was done not by Fannie, but by Wall Street. The banks themselves pushed for it, especially subprime loans, which were so much more profitible (assuming they didnt default en masse).
Rather than taked the easy way out, lie and shift resposibility away
from himself, Easy Al surprised us all: He refused to bear false
witness, and took the rap for his failures. Good for him — he has more
decency in him than perhaps many expected. We all know too many others
in Washington D.C. who would have taken the easy way out from under the
blame.
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Previously:
Greenspan: "I Suck" (October 2008)
http://bigpicture.typepad.com/comments/2008/10/greenspan-i-suc.html
Source:
Greenspan Concedes Error on Regulation
EDMUND L. ANDREWS
NYT, October 23, 2008
http://www.nytimes.com/2008/10/24/business/economy/24panel.html
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