The Wall Street Journal reports:
Alan Greenspan, lauded in Congress while the economy boomed, conceded under harsh questioning from lawmakers that he had made mistakes during his long tenure as Federal Reserve chairman that may have worsened the current slump.
In a four-hour appearance before the House Oversight Committee Thursday, Mr. Greenspan encountered legislators who interrupted his answers, caustically read back his own words from years ago, and forced him to admit that, at least in some ways, his predictions and policies had been wrong.
Returning to Capitol Hill amid a financial crisis rooted in mortgage lending, Mr. Greenspan said he had been wrong to think banks’ ability to assess risk and their self-interest would protect them from excesses. But the former Fed chairman, who kept short-term interest rates at 1% for a year earlier this decade, said no one could have predicted the collapse of the housing boom and the financial disaster that followed.
Lawmakers weren’t buying his explanations. “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. And now our whole economy is paying its price,” said Rep. Henry Waxman (D., Calif.), chairman of the House committee.
Lawmakers read back quotations from recent years in which Mr. Greenspan said there’s “no evidence” home prices would collapse and “the worst may well be over.”
The 82-year-old Mr. Greenspan said he made “a mistake” in his hands-off regulatory philosophy, which many now blame in part for sparking the global economic troubles. He quoted something he had written in March: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”
He conceded that he has “found a flaw” in his ideology and said he was “distressed by that.” Yet Mr. Greenspan maintained that no regulator was smart enough to foresee the “once-in-a-century credit tsunami.”
Source:
Greenspan Admits Errors to Hostile House Panel
Kara Scannell and Sudeep Reddy
wsj.com
October 24, 2008