In 66 pages [pdf], Mr. Greenspan fails to use the word "responsibility" even once. The word "blame" does not appear. The word "mistake" occurs once; financial firms made them. The word "failure" appears 14 times. None of them are self-referential. To have expected the phrase "mea culpa" would of course be asking too much.
I agree with the Chairman on two points. The first is his defense of the Federal Reserve against the charge of having violated the Taylor Rule. One of the few things more insufferable than this paper is that formula. Mr. Greenspan effectively rebuts the idea that low interest rates per se caused the crisis.
The second good point lies against the "global savings glut" argument. As Mr. Greenspan says, "The main problem with that explanation is that there is no actual evidence of a global savings glut."
In view of this statement, Dr. Sawhill's remark that the Chairman "lays most of the blame on a glut of global saving" seems odd. Well, the phrase quoted occurs on page 43. Perhaps Dr. Sawhill didn't read that far.
The remaining noteworthy parts of this paper are substantially a meditation on two themes. The first consists of whatever reminders one can find that Chairman Greenspan really did foresee the crisis. He goes all the way back to his 1996 comment about irrational exuberance! On the housing bubble, he writes that "almost all market participants of my acquaintance were aware of the growing risks." He quotes himself in the quiet sanctuary of the FOMC in 2002, that the "extraordinary housing boom... financed by very large increases in mortgage debt... cannot continue indefinitely."
So he did know. He wasn't the innocent he made himself out to be, in October 2008, before Congress, when he said he was in a state of "shocked disbelief." Did he tell the public? Did he get up on his incomparable soapbox? Did he warn against the dangers of option ARMS with teaser rates? He did not. On the contrary: he went on record encouraging their use.
The second main theme is that nothing could have been done. The whole thing started with the fall of the Soviet Union. It was global. It was a "hundred year flood." "The aftermath of the Lehman crisis traced out a startlingly larger negative tail than most anybody had earlier imagined." And even if they had tried, they would have done more harm than good:
"The complexity of our financial system in operation spawns, in any given week, many alleged pending crises that, in the event, never happen and innumerable allegations of financial misconduct. To examine each such possibility in the level of detail necessary to reach meaningful conclusions would require an examination force many multiples larger than those now in place in any of our banking regulatory agencies. Arguably, at such levels of examination, bank lending, and its necessary risk taking, would be impeded."
I'm sorry, but that's garbage, in one word.
The most telling omission in this paper is that the word "fraud" does not appear. But the world knows that the collapse of the financial system had, at its core, the largest financial fraud of all time. That fraud was in the origination, the rating, the underwriting and the issuance of credit default swaps against sub-prime mortgages issued largely by private originators and securitized by the largest banks.
The FBI knew this in 2004, when it warned in public of an "epidemic of mortgage fraud." When Fitch Ratings in 2007 undertook a small sample survey of "high CLTV, stated documentation loans" here's what they found: "The result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file." But Mr. Greenspan will not say the word aloud.
The Federal Reserve is a regulator. Alan Greenspan was the chief regulator for 18 years. He failed spectacularly. So did his colleagues, at the Office of Thrift Supervision and elsewhere. These facts are not obscured here. They are ignored.
I suppose the First Amendment applies to former Federal Reserve Chairmen attempting to cover their tracks. I wish it didn't. At the very least, as a constitutional compromise, there might be a word limit.
Crossposted with NationalJournal.com.
The last time "this got started" was in 1913. Please do yourselves a favor and watch (need to buy)
www.SecretOfOz.com
But not for the parallels author Frank Baum put in his "Wonderful Wizard of Oz," but for the succinct explanation how National Debt System came about and how it can be stopped. I bet ya that you'll have your friends over to watch it. It's only $19 bucks. I wish I could buy a thousand of 'em to give out.....
They chose short term gain over the good of the country & the economy.
And the "they" is defined as the heads of the corporations, banks & Wall Street companies that promoted making bad loans, that profited off those loans at the origination, then when they were sold on the secondary market, and then when their stock when up and they cashed out right before the fall. And the "they" also includes their minions who looked the other way because they were also earning high salaries and commissions on those transactions. And the "they" also include the people who took out those loans & knew that they didn't have the income to support the payments and didn't feel any responsibility. The "they" of this multi-faceted crisis are many.
But Mr. Greenspan is one, as well. And he's one who professed to know what was right for the country and he chose to look the other way.
And he has no shame.
Was this caused by arrogant blindness, or did it happen, more or less as planned? Reluctantly, I'm leaning toward the latter as it seems like there is more evidence every day that failure was more profitable than success.
"Arguably, at such levels of examination, bank lending, and its necessary risk taking, would be impeded."
I say: Let's begin the impediment!
In addition to what I said in my reply to this person's response, I would add the following:
78% of the net job losses under NAFTA, 686,700 jobs, have been good-paying manufacturing jobs with benefits . These losses have had an especially bad impact on states with heavy emphasis on manufacturing, such as Michigan, Ohio, Pennsylvania, Indiana, and California. Yes, most of those people found jobs in other sectors, but the majority were service industry jobs, which pay 20% lower on average and have far fewer beneifts than manufacturing jobs.
Between 2001 and 2003 alone, one in seven manufacturing jobs was lost. In 1950, a third of our labor force was in manufacturing--now it's barely 12%.
Here are the levels of American dependency on foreign suppliers for critical goods:
Medicines and pharmaceuticals: 72 percent
Metalworking machinery: 51 percent
Engines and power equipment: 56 percent
Computer equipment: 70 percent
Communications equipment: 67 percent
Semiconductors and electronics: 64 percent
Thank you! Thank you!! Thank You!!!!
Lyndon LaRouche wrote about this housing bubble in his little book called something like: Do you want to learn economics. I forgot the actual title, but one of his people gave it to me between 1999 and 2002 in a recruitement drive. What he predicted is what happened and continues to happen. It's sad what has and is happening to this great nation.
I wish he were writing from a jail cell.
he was the MAESTRO ----
fine tuning the economy ---fighting tooth and nail against raising the minimum wage to keep inflation under control.
you're doing a fine job greenie