T Nation

Greenspan Concedes Error on Regulation


#1

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.

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.

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.�??


#2

[quote]Gael wrote:
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.

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.

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.�??

Sounds like a lot of CYA and blameshifting from Greenspan, who should have raised interest rates 5 years earlier than he did if he thought things were out of control.


#3

[quote]PRCalDude wrote:
Gael wrote:

Sounds like a lot of CYA and blameshifting from Greenspan, who should have raised interest rates 5 years earlier than he did if he thought things were out of control.
[/quote]

Yep. I expected a lil’ more from an ‘economic genius’ … but eh, we’re all human


#4

Even though he is a keynesian, I do repect the guy’s intellegence. His book is actually very good. That being said, I don’t think he actually believes this.

First, he knows the self correction is a stretch when big brother is involved.

Secondly, he knows deregualion is perfectly fine if institutions are allowed to fail. He also knows we have had no such deregulation.

If I would have read this not knowing who wrote it, I wouldn’t have guessed it came out of his mouth.


#5

To say that the free market caused these issues just baffles me. Maybe it should be the government that needs more regulation on what it is allowed to do in the market – or maybe the Fed needs it.

Does anybody consider that?


#6

[quote]polo77j wrote:
PRCalDude wrote:
Gael wrote:

Sounds like a lot of CYA and blameshifting from Greenspan, who should have raised interest rates 5 years earlier than he did if he thought things were out of control.

Yep. I expected a lil’ more from an ‘economic genius’ … but eh, we’re all human[/quote]

Exactly.


#7

[quote]PRCalDude wrote:
Gael wrote:
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.

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.

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.�??

Sounds like a lot of CYA and blameshifting from Greenspan, who should have raised interest rates 5 years earlier than he did if he thought things were out of control.
[/quote]

Yeah. He’s been catching alot of heat, so now it’s blame free markets? How about loose monetary policy and socailizing risk? Unbelievable.