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Greenspan defends decisions before panel investigating crisis

Former Fed chairman Alan Greenspan testifies before the Financial Crisis Inquiry Commission.
Former Fed chairman Alan Greenspan testifies before the Financial Crisis Inquiry Commission. (J. Scott Applewhite/ap)

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By Neil Irwin and Renae Merle
Thursday, April 8, 2010

Former Federal Reserve chairman Alan Greenspan on Wednesday defended his stewardship of the U.S. economy in the run-up to the financial crisis, rebuffing accusations that regulatory and other failures by the Fed under his leadership were a major cause of the near-collapse of the financial system.

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Testifying before the Financial Crisis Inquiry Commission, a bipartisan panel established to investigate the causes and lessons of the crisis, Greenspan conceded little in response to aggressive questioning from some committee members.

Listing a series of warnings about irresponsible mortgage lending in the late 1990s and early 2000s, Phil Angelides, the chairman of the committee, asked: "Very simply, Mr. Chairman, why, in the face of all that, did you not act to contain abusive, deceptive subprime lending? Why did you allow it to become such an infection in the marketplace?"

Greenspan responded by noting a string of actions that the Fed took in the late 1990s and early 2000s that were meant to prevent irresponsible mortgage lending.

"When you've been in government for 21 years, as I have been, the issue of retrospective and figuring out what you should have done differently is a really futile activity," Greenspan said, "because you can't, in fact, in the real world, do it.

"I was right 70 percent of the time. But I was wrong 30 percent of the time. And there were an awful lot of mistakes in 21 years."

Brooksley Born, the former head of the Commodity Futures Trading Commission who clashed with Greenspan in the 1990s over regulation of derivatives, lambasted her former adversary.

"The Fed utterly failed to prevent the financial crisis," said Born, one of 10 members of the crisis-inquiry panel. "The Fed and the banking regulators failed to prevent the housing bubble. They failed to prevent the predatory lending scandal. They failed to prevent our biggest banks and bank-holding companies from engaging in activities that would bring them to the verge of collapse without massive taxpayer bailouts."

She continued: "They failed to recognize the systemic risk posed by an unregulated over-the-counter derivatives market, and they permitted the financial system and the economy to reach the brink of disaster. You also failed to prevent many of our banks from consolidating and growing into gigantic institutions that are now too big and/or too interconnected to fail. Didn't the Federal Reserve System fail to meet its responsibilities, fail to carry its mandates?"

Greenspan deflected her criticism, arguing that responsibility for those failures is broader than just the Fed under his leadership.

"I took an oath of office to support the laws of the land," Greenspan said. "I don't have the discretion to use my own ideology to affect my judgments as to what the Congress is requiring the Federal Reserve and others to do."

Even as Greenspan was dismissive of the idea that the Fed was in position to stop the housing bubble, there were new signs that current Fed leadership is inclined to take the rise of bubbles seriously.


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