Greenspan Admits Error

[Dr. Shane]

Well, it isn't good for the Blame-Bush crowd.

Greenspan Concedes Error on Regulation

Quote:

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.”

[fccool]

Greenspan is just doing his part here, and he is CONTRADICTING HIMSELF! I don't know how people did not notice, as long as he was in Fed he was FOR regulation... and now he is saying that he was mistaken and now he is for regulation? How is it different?

If he believed in free market economy, what do you think he was doing in Fed lowering the interest rates? That's not free market economy.

[Dr. Shane]

Keeping interest rates low as long as he did was a mistake. It had a lot to do with the financial crisis we are now in.

[carolaa]

I would say that was a big factor is discouraging people from saving.

[jasd]

QR frame:

[...]

"But more than a decade ago, a woman you're likely never to have heard of, Brooksley Born, head of the Commodity Futures Trading Commission -- a federal agency that regulates options and futures trading -- was the oracle whose warnings about the dangerous boom in derivatives trading just might have averted the calamitous bust now engulfing the US and global markets. Instead she was met with scorn, condescension and outright anger by former Federal Reserve Chair Alan Greenspan, former Treasury Secretary Robert Rubin and his deputy Lawrence Summers. In fact, Greenspan, the man some affectionately called "The Oracle," spent his political capital cheerleading these disastrous financial instruments.

[...]

In 1997, Brooksley Born warned in congressional testimony that unregulated trading in derivatives could "threaten our regulated markets or, indeed, our economy without any federal agency knowing about it." Born called for greater transparency -- disclosure of trades and reserves as a buffer against losses.

Instead of heeding this oracle's warnings, Greenspan, Rubin & Summers rushed to silence her. As the Times story reveals, Born's wise warnings "incited fierce opposition" from Greenspan and Rubin who "concluded that merely discussing new rules threatened the derivatives market." Greenspan deployed condescension and told Born she didn't know what she doing and she'd cause a financial crisis. ...

[...]

Congress (apparently as a result of Greenspan & Summer's urging, influence-peddling and pressure) "froze" Born's Commissions' regulatory authority. The next year, Born left as head of the Commission. Born did not talk to the Times for their article.

What emerges is a story of reckless, willful and arrogant action and behavior designed to undermine a wise woman's good judgment. The three marketeers' disdain for modest regulation of new and risky financial instruments reveals a faith-based fundamentalist approach to the management of markets and risk. If there is any accountability left in our system, Greenspan, Rubin and Summers should not be telling anyone how to run anything. ..."

Let me see, one of our Presidential Candidates makes a big Hoo-Hah that Rubin is the expert advising him in matters financial, yes?

[fccool]

The presidential candidates have a very oversimplified view of the economy and money dynamics. Most politicians usually do, as they are not economists.

Unfortunately, the economic decisions are left to the people who's decisions and motives are not transparent, and it's really insane if you think about it. When I was in college, or professor put a question on the board: "Who is the most powerful person in the US". The aswer was not Clinton or Bush... it was Greenspan, as he could singlehandedly bring the entire nation to its knees without firing a shot. During that time he was "genious" beyond reproach, and very few people in our University would argue against his policies.

What irks me the most is that the successors learn nothing from the mistakes of the past, and they keep repeating these. Also I do give Bernanke credit for trying, because in reality he has only one other choice and it is throwing his hands in the air and letting it all crush. Instead he choice to crash land the economy by doing some manipulation and maneuvering. Yet in the end, if the engine is busted... the plane is still going down.

[carolaa]

Do you have a reference or link for that info?

[jasd]

I put a link with the post but the entire format was made difficult to read - so I deleted it.

Highlight any part of it - cut and paste to Google search - and you'll find multiple URLs carrying the story.

[CyberGuy]

The problem is this. Whenever the Fed raises interest rates the economy nose dives into a recession 18 months later. The only reason for raising interest rates is to fight inflation. So what if the economy is red hot. As long as inflation is low that is a good thing. I am always upset with the fed when things are going good they start tinkering with the interest rates. When Greenspan did that in the 1990's I was one of those that lost his job due to the recession his higher interest rates caused and the resulting economic downsizing. I was not a happy camper with Greenspans policies at that time.

[carolaa]

I'm seeing her name all over the liberal and progressive sites, which makes me surprised that you would be mentioning her.

[Dr. Shane]

The problem is this. Whenever the Fed raises interest rates the economy nose dives into a recession 18 months later. The only reason for raising interest rates is to fight inflation.

Well, that seems to be the prevailing wisdom but is a little short-sighted I think. Not only do we need to be concerned about inflation but also the value of the currency and ballooning markets caused by cheap currency. I think the days of just trying to keep inflation in check are over. At least I hope they are.