Northwest Indiana Discussion

Excerpts from the NYTIMES

Greenspan Concedes Error on Regulation
By EDMUND L. ANDREWS, NYTIMES

Published: October 23, 2008

WASHINGTON — For years, a Congressional hearing with Alan Greenspan was a marquee event. Lawmakers doted on him as an economic sage. Markets jumped up or down depending on what he said. Politicians in both parties wanted the maestro on their side.

But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“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,” he told the House Committee on Oversight and Government Reform.

Now 82, Mr. Greenspan came in for one of the harshest grillings of his life, as Democratic lawmakers asked him time and again whether he had been wrong, why he had been wrong and whether he was sorry.
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.”

On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives.

But on Thursday, he agreed that the multitrillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, needed to be restrained.

Mr. Greenspan, celebrated as the “Maestro” in a book about him by Bob Woodward, presided over the Fed for 18 years before he stepped down in January 2006. He steered the economy through one of the longest booms in history, while also presiding over a period of declining inflation.

But as the Fed slashed interest rates to nearly record lows from 2001 until mid-2004, housing prices climbed far faster than inflation or household income year after year. By 2004, a growing number of economists were warning that a speculative bubble in home prices and home construction was under way, which posed the risk of a housing bust.

Mr. Greenspan brushed aside worries about a potential bubble, arguing that housing prices had never endured a nationwide decline and that a bust was highly unlikely.

Mr. Greenspan, along with most other banking regulators in Washington, also resisted calls for tighter regulation of subprime mortgages and other high-risk exotic mortgages that allowed people to borrow far more than they could afford.

The Federal Reserve had broad authority to prohibit deceptive lending practices under a 1994 law called the Home Owner Equity Protection Act . But it took little action during the long housing boom, and fewer than 1 percent of all mortgages were subjected to restrictions under that law.

This year, the Fed greatly tightened its restrictions. But by that time, the subprime market as well as the market for other kinds of exotic mortgages had already been wiped out.

Sorry, little timmy. Greenspan belongs to both parties and the resistance to oversight was on the part of the Democrat party because the ones in charge were making so much money and getting BIG bucks in donations.

Just like Barack bin Obama getting tons of cash from Freddie and Fannie to look the other way.

Thanks for playing.

The collapse happened on Bush's watch,7 1/2 yrs after he took office.

Poor uneducated artie the fool.

Does anyone really believe that POOF things just collapsed...?

I mean besides people like artie who are so blinded by hate and rage they can't see straight...?

And if you aren't blinded by hate and rage you can see the FACTS for what they are, Barack bin Obama was a BIG part of what happened in the financial collapse and he got BIG money for looking the other way while the events were leading up to it.

John McCain saw it and tried to stop it but was rebuffed by the Democrats.

Jarhead - you're obviously in need of remedial reading sessions and thus too stupid to argue with.

Little timmy- you obviously don't know what you are talking about and are in need of an education and some history lessons.

Too stupid, indeed.

Well Marine, get on with it, then. Instruct me from that vast reservoir of knowledge and understanding ostensibly at your command. Enlighten me as to how we arrived at this financial crisis.

I'll take it.
Sub-prime loans to people too stupid to read a contract.
Gimme - Gimme - Gimme

Which were due to deregulation pushed by Republicans like McCain economic advisor,Phil Gramm.

Actually it was due to the Government forcing banks to lend to people that couldn't pay it back.
Then the Government backed the loans and ended up holding the bag when the collapse came.

Barack bin Obama got a LOT of money for turning a blind eye to it and Barney Frank did the same.

It's all on record for those not blinded by hate or in artie's case, a lack of education.

Then post the proof,housebound

LMAO

You prove it every single day with each and every post you make, t***.

Actually it was due to community organizers like ACORN (which obama has represented in the past) and Jesse Jackson intimidating banks that if they didn't give loans for houses to minorities, even if they couldn't afford them, they would have to endure discrimination lawsuits.

There are topics upon topics under the Nation and World on this and yes, it was the Dems.

http://www.youtube.com/watch?v=_MGT_cSi7Rs