Greenspan Grilled On The Mortgage Market

Oct 24th, 2008 @ 4:18 PM by Alden Smith

For many years, Alan Greenspan, former chairman of the Federal Reserve, has been a fixture in Washington. Markets moved on his words. He is a highly educated man, and knows the markets probably better than anyone. Now, Greenspan is taking a ding in Washington for the current market mess.

I doubt if Greenspan will concur that he did not see this coming. He is way too wise for that. But Greenspan also concurred on Thursday that he may have been mistaken about putting too much faith in the self-correcting power of free markets. He claims that he “failed to anticipate the self-destructive power of wanton mortgage lending.”

Greenspan told the House Committee on Oversight and Government Reform that “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.”

Critics are now blaming Greenspan for the variety of ills that face the nation. They feel he drove the housing bubble by keeping interest rates too low. Critics feel he did little to rein in the explosive growth of risky and often fraudulent mortgage lending. Representative Henry A. Waxman of California, chairman of the committee, told Greenspan that “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. Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Greenspan acknowledged that yes, he saw a flaw in his thinking, and was distressed by this fact.

I have a hard time believing that we as the greatest nation on earth were unaware of the problems beginning clear back when Clinton was in office. The Federal Reserve has always had broad authority to prohibit deceptive lending practices, under law since 1994. It is a possibility that they did not see what was happening for a short period of time, but for 14 years? Was no one minding the store?

We will see the economy stagger a good deal longer. The Big Three are now in the soup, and the possibility of millions of jobs being lost is a very large reality. Plants are closing, white collar workers are being laid off, and the markets are being frozen in places like Russia, Iceland and Italy. This is by no means a home grown bust - the implications are being felt around the world. The incoming President will have a very hard time pulling the nation out of this one, I believe. Meanwhile, everyone will suffer. Until drastic measures are taken, I believe that many more people will be hurt through this fiasco. It is just too bad that a nation as powerful as ours is in such of a mess, mainly due to the greed of a few. We should feel ashamed as a nation.

Posted in Mortgage Refinancing, Mortgages
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