(Note: I guess it’s a shame that the Olympics ended about a month ago, or else that post title would have been more timely.)
The New York Times tells us the following (here)…
WASHINGTON — The committee examining the causes of the financial crisis heard a strong defense of the Federal Reserve from its former chairman on Wednesday as the panel began three days of hearings 0n the failure to rein in Citigroup, Fannie Mae and the subprime mortgage market.
In his testimony, an unflinching Alan Greenspan fended off a barrage of questions about the Fed’s failure to crack down on subprime mortgages and other abusive lending practices during his lengthy tenure.
He pointed out that the Fed had warned about subprime lending and low-down-payment mortgages in 1999, and again in 2001. And he argued that if the Fed had tried to slow the housing market amid a “fairly broad consensus” about encouraging homeownership, “the Congress would have clamped down on us.”
He added: “There is a lot of amnesia that’s emerging, apparently.”
If that isn’t a “pot, meet kettle” quote, I don’t know what is.
Oh, and did you know that, according to this live blogging post at HuffPo by Shahien Nasiripoour and Ryan McCarthy, Greenspan, while chastising everyone for the subprime collapse except himself (of course), also cited the collapse of the Berlin Wall in 1989 as another reason, saying that, as a result “central planning, in one form or another, was discredited and widely displaced by competitive markets.”
I wish I were joking.
And Greenspan also said that the financial markets are “too complex for regulators,” banks have been “undercapitalized for the last 40 or 50 years,” and the Federal Reserve Bank of New York, under current Treasury Secretary Timothy Geithner, failed to conduct the kind of regulation of Citigroup that was "ideal" (probably true, I’ll admit).
Once a “Randian,” always a Randian (no blame, no accountability), huh Greenie?
Now, for the reality point of view, Paul Krugman reminds us here in 2004 that “the wizard” told us we needn’t worry about a national housing bubble, and Greenspan followed that up by saying in 2005 that “complex financial instruments” have created a “resilient” financial system.
Well, I guess that could be true, inasmuch as a house of cards is “resilient” until a stiff wind comes along.
And on Sunday, the Times published an Op-Ed by Michael J. Burry, who ran the hedge fund Scion Capital from 2000 until 2008; Burry also takes issue with Greenspan’s “no one saw this coming” defense (including the following)…
As a nation, we cannot afford to live with Mr. Greenspan’s way of thinking. The truth is, he should have seen what was coming and offered a sober, apolitical warning. Everyone would have listened; when he talked about the economy, the world hung on every single word.
Unfortunately, he did not give good advice. In February 2004, a few months before the Fed formally ended a remarkable streak of interest-rate cuts, Mr. Greenspan told Americans that they would be missing out if they failed to take advantage of cost-saving adjustable-rate mortgages. And he suggested to the banks that “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”
Within a year lenders made interest-only adjustable-rate mortgages readily available to subprime borrowers. And within 18 months lenders offered subprime borrowers so-called pay-option adjustable-rate mortgages, which allowed borrowers to make partial monthly payments and have the remainder added to the loan balance (much like payments on a credit card).
…
It did not have to be this way. And at this point there is no reason to reflexively dismiss the analysis of those who foresaw the crisis. Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat. If the mistakes were properly outlined, that might both inform Congress’s efforts to improve financial regulation and help keep future Fed chairmen from making the same errors again.
Of course, that would have meant that Greenspan would have had to act on his belief that the markets are “too complex for regulators” and not merely accept it as some kind of a free-market truism that very nearly wrecked our economy, creating a mess from which we will be trying to extricate ourselves for years to come.
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