Fri Oct 24th, 2008 at 07:16:17 AM EST
In the big U.S. newspapers
thisyesterday afternoon are reports of former Federal Reserve Chairman Alan Greenspan's appearance before the U.S. House Oversight and Government Reform Committee today.
The Washington Post reports Greenspan described the financial crisis a "once-in-a-century credit tsunami" and the Los Angeles Times adds Greenspan warns unemployment will rise.
"This crisis ... has turned out to be much broader than anything I could have imagined ... Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment."
According to The New York Times, Greenspan said he "made a mistake" in believing free markets could regulate themselves without government oversight.
On a similar note, the LA Times adds Greenspan "admitted that the crisis showed flaws in his strong free-market ideology", but I don't interpret him saying that at all.
promoted with time edits by afew
Greenspan said in prepared remarks:
"As I wrote last March, those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief... Such counter-party surveillance is a central pillar of our financial markets' state of balance. If it fails, as occurred this year, market stability is undermined."
The Washington Post adds:
"It was the failure to properly price such risky assets that precipitated the crisis," Greenspan said, by encouraging investors worldwide to look at U.S. subprime loans as a "steal" rather than an uncertain bet that relied on escalating home values. "The whole intellectual edifice . . . collapsed in the summer of last year."
As noted elsewhere the bubble burst last summer, but instead of calling attention to the problem Greenspan and his ilk created, they helped their friends, associates, and clients to get out of harm's way before the "whole intellectual edifice collapsed". The Dow closed at a record high in October 9, 2007.
The NY Times describes the exchanges between Greenspan and Rep. Henry Waxman.
Waxman, the committee's chairman, as "tense". Under questioning from Waxman, Greenspan said:
"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Mr. Greenspan said.
Referring to his free-market ideology, Mr. Greenspan added: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact."
Mr. Waxman pressed the former Fed chair to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Mr. Waxman said.
"Absolutely, precisely," Mr. Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."
This is the true legacy of Greenspan. A man who took a financial system that had worked more or less for more than 40 years and then pushed for deregulation and no oversight and then had it collapse in the worst financial crisis since the start of the Great Depression. The LA Times reports on Waxman remarks as he opened today's hearing:
"For too long, the prevailing attitude in Washington has been that the market always knows best. The Federal Reserve had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market. But its longtime chairman, Alan Greenspan, rejected pleas that he intervene."
To this day, Greenspan does not understand what caused the financial collapse, not can he admit his role in the downfall. Waxman flat out asked Greenspan if he made a mistake.
"My question for you is simple: Were you wrong?" Waxman said.
Greenspan said his mistake was in presuming that it was in the self-interest of banks and other financial institutions to best protect their shareholders.
"The problem here is something that looked to be a very solid edifice ... did break down. And I think that, as I said, shocked me. I still do not fully understand why it happened." Greenspan said.
The collapse happened, in part, because of Greenspan's libertarian, free market ideology and his irrational belief markets would regulate themselves.
But when asked by Waxman if he had "any personal responsibility for the financial crisis," Greenspan dodged a direct answer. He admitted a flaw in his free-market ideology, but said he made decisions as chairman based on federal laws, "not my own views."
Greenspan still cannot come to terms with the disaster he created. He advocated deregulation. His decisions were almost solely based on his ideology that called for no governmental role in overseeing markets. He actively lobbied to prevent laws to regulate derivatives and the financial markets. Greenspan's ideology helped create the collapse and he still cannot or refuses to see the outcome of putting his views into action.
Cross-posted from Docudharma.