I watched the House of Representatives hearings a week ago Thursday in utter disbelief! I could not believe the testimony I was hearing from former Federal Reserve Chairman (1987 - 2006) Alan Greenspan. This testimony included the following statements:
-"We are in the midst of a once-in-a century credit tsunami". Interpretation: an uncontrollable natural event that no one could have prevented or foreseen – therefore, I am not responsible.
-"As I wrote last 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". Is it really a surprise that unregulated banks which are really just a synonym for the collection of greedy executives that run them, would act to maximize their own compensation in the short term regardless of the consequences for shareholders or the entire financial system?
-"But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world". So, the investment banks weren't really responsible, it was those damned greedy investors! See, there really isn't a need for much regulation, I really wasn't wrong!
-"The consequent surge in global demand for U.S. subprime securities by banks, hedge, and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem". Those damned greedy investors again, and what were the ratings agencies thinking, what were the poor investment banks to do but supply this insatiable demand?
-"Uncritical acceptance of credit ratings by purchasers of these toxic assets has led to huge losses". Once again the investors and credit agencies are at fault – are you seeing a theme here?
-"It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today's markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime". In other words, don't go overboard on regulation, you really won't need it. Trust Me!
Although Mr. Greenspan admitted that 'his model' for the economy that had worked so well for 40 years was somewhat flawed(are you kidding me, what about the 1987 crash, the Savings and Loan debacle, the dotcom bubble,….), he would not admit that his monetary policy had any influence on the events of this decade. He was also reticent, in the question period, to advocate increased regulation of derivatives and assured us that credit default swaps would disappear so there was no need for extensive regulation.
In short, Mr. Greenspan would have us believe that he is to be totally absolved of any responsibility for the events of the last year. His arrogance is completely in line with so many others that have testified to Congress lately. While Mr. Greenspan is not totally responsible for the current situation, his policies of easy money while supporting low taxes and lack of regulation have certainly played a major role in the breadth and severity of the financial crisis we are currently facing.
It would have been nice to hear: "I was wrong" or "I am sorry". Since we heard neither, we can only hope that KARMA will find him!!!
Tracey A Smith
Editor of the Karma Report