Critics challenge Greenspan's defense
Former Federal Reserve Chairman Alan Greenspan presented a 48-page review of the financial crisis at the Brookings Institution. He acknowledged some lapses, but denied the Fed encouraged the real estate bubble by leaving interest rates too low. Bob Moon reports.
Former Federal Reserve Chairman Alan Greenspan at a conference. (Scott Olson/Getty Images)
Links
- Weekly Wrap: SEC and Greenspan
For more analysis on Alan Greenspan and on whether the SEC is on the road to redemption, check out our Weekly Wrap. - Brookings Institution: "The Crisis" by Alan Greenspan
TEXT OF STORY
KAI RYSSDAL:This was Alan Greenspan day at the Brookings Institution. The former Fed Chairman presented a 48-page defense of his tenure running the central bank.
As our senior business correspondent Bob Moon reports.
Bob Moon: Greenspan's critics say he's conveniently forgetting the past. He says now that regulators did too little to halt the rise of those "too big to fail" banks. But just five years ago, he was selling the country on his hands-off approach.
Alan Greenspan on Dec. 2, 2005: The impressive performance of the U.S. economy over the past couple of decades, despite shocks that in the past would have surely produced marked economic disruption, offers clear evidence of the benefits of increased market flexibility.
The Cato Institute's Gerald O'Driscoll says it was Greenspan who led the charge for deregulation -- and worse, he says, for that hands off approach:
Gerald O'Driscoll: The Fed had statutory authority over the whole array of people making mortgages since 1994, and there was just non-enforcement of basic banking law.
Greenspan also argues it wasn't short-term interest rates that fueled the housing bubble, but long-term rates the Fed has little control over. Not so, says Frederick Sheehan, who wrote a book on Greenspan titled "Panderer to Power." Sheehan says Greenspan actually made a speech early this decade promoting short-term adjustable-rate mortgages, which grew from 2 percent to 67 percent of the California market.
Frederick Sheehan: So the carnage today is directly from the short-term interest rate policies of the Federal Reserve.
The author of another book critical of Greenspan says the former Fed boss is not one to admit mistakes. William Fleckenstein co-wrote the book "Greenspan's Bubbles."
William Fleckenstein: He's just trying to avoid any blame. It's just so obvious. And the fact that people let him get up and say this kind of nonsense and don't boo him off the stage is mind-boggling to me.
For his part, Greenspan says the good times lulled regulators into a sense of complacency.
I'm Bob Moon for Marketplace.
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From Danville, CA, 03/22/2010
I retired from the San Francisco Federal Reserve a few years ago. While I was working for Banking Supervision and Regulation Department, I saw and heard many of the bank examiners very perturbed which changed into concern and then alarm over the huge number of sub prime loans and bad debts being covered up by the banks - my boss, the vice president, had some very angry conversations with the CEOs of the banks, one of them being Wells Fargo's CEO, Robert Kovacevich, and was actually yelling at them demanding they stop making sub prime loans and manipulating investors money in derivative scamming, etc. The CEO would first argue (I was in my boss' office listening to the conversation)and say they were not doing anything wrong, then when the vice president would not buy that, they would promise to stop all the bad stuff that was going on. However, next month, it was repeated all over again. The examiners wrote in their reports of all the banks how dangerous the situation was, that with the repeal of the Glass Steagal Act, it would open the doors for the banks to do anything with no regulations or laws to stop them and that financial institutions like Charles Schwab (whom we also supervised after the law passed that would allow them to become banks as well as stock traders) would now also be allowed to do anything and everything in the financial markets. I remember seeing the looks on the examiners' faces, like they were in shock at the possibilities for scams, fraud, deceit, coverups, etc. All of this was put into their monthly reports which went to my boss, then up to Robert Parry, President of the San Francisco Federal Reserve, and then the information was included in memos to Alan Greenspan's Federal Reserve Board. This was done during all the years that the financial catastrophe was being formed by all the greedy financial executives - like a pyramid scheme that would make Bernie Madoff's look like a little blip on the screen. I couldn't believe it when Greenspan testified before Congress and said he had not a clue and was shocked that such a thing would happen or that it had been in the making. He should be in prison with Bernie at the very least! Same goes for Timothy Geithner who said he was completely obvlivious that the financial institutions were in such bad shape - he knew everything that was going on - he could not be President of the New York Federal Reserve and never know - the bank examiners would have put it in every bank examination report. What liars and crooks these people are and why isn't someone doing something about it? Chris Dodd, who is a politician on the take from lobbyists is again handing the financial institutions the very same loopholes to do the very same thing in his new bill that supposedly is going to put regulations on the institutions. If you will read it carefully, you will see that he has been paid off again and instead of having an independent committee to oversee the financial institutions, has decreed in the new bill that the actual oversight committee will be the very people who caused this in the first place - THE FEDERAL RESERVE!!!!
From Milan, MI, 03/20/2010
Greenspan is at least not entirely at fault. A large part of the blame for the housing crisis was how the banks made so many loans to unqualified borrowers ... and that was largely because of regulations passed by Congress.
From Shanghai, 03/20/2010
Well, I can understand the human nature of finding scapgoat for something went wrong, especially for such a big scale fallout, and even went as far as to blame China for the current US economical slump, but any cool-head logic thinking should be focused on the solution and preventive actions, not what already happened. Blaming Mr. Greenspan does not help the current situation, especially the unemployment issue....
03/19/2010
Since you all appear to be too willing to blame Greenspan for the financial crisis perhaps you should listen to economist Jeff Rubin before passing such a definite judgment? http://www.youtube.com/watch?v=fNUGCu1hx88
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