Greenspan on 60 Minutes: It was all Bush's
By Mike Whitney
09/17/07 "ICH" --- - Alan Greenspan’s appearance
on 60 Minutes was preceded with all the pomp and ceremony of
a royal wedding. The public relations blitz dragged out for
a whole week.
What profound truisms would the elusive former-fed master
divulge to the News Magazine’s withered-coquette, Leslie
Stahl? Would he produce his crystal ball and forecast
America’s blurry economic future in mangled Fed-speak? Or
would he focus on the startling gyrations in the stock
market and the “frothy” conditions in the slumping housing
market? The suspense was nearly unbearable.
“Why didn’t you stop the illegal or shady practices you
knew were taking place in subprime lending?” Stahl inquired.
“Err, I had no notion of how significant these practices
had become until very late. I didn’t really get it until
late 2005 and 2006”, Greenspan replied nervously adjusting
Hmmmmm. That’s not exactly true, Maestro. In fact, here’s
what Greenspan said as chairman at the Federal Reserve
System’s Fourth Annual Community Affairs Research
Conference, Washington, D.C. April 8, 2005.
“Innovation has brought about a multitude of new
products, such as subprime loans and niche credit programs
for immigrants. Such developments are representative of the
market responses that have driven the financial services
industry throughout the history of our country. With these
advance in technology, lenders have taken advantage of
credit-scoring models and other techniques for efficiently
extending credit to a broader spectrum of consumers.”
Sounds like a ringing endorsement of subprime lending to
Greenspan also brushed aside Stahl’s claim that the Fed
chief was warned by other members of the Central Bank
(Edward Gramlich) about the dangers of subprime lending.
“We were not capable” of doing (regulating) that.”
Greenspan protested while emitting a slight-gurgling sound.
Greenspan doesn’t accept any blame for keeping interest
rates at historic lows and inflating the credit and housing
bubbles which are now crashing to earth. He was simply
"doing his job" according to sound economic principles.
Baloney. What a grim performance by the world’s greatest
“It was our job to unfreeze the American banking system
if we wanted the economy to function. This required keeping
interest rates modestly low,” Greenspan opined.
1% interest rates are modestly low? It's a cash giveaway
designed to boost speculation.
Greenspan did nothing while mortgage lenders were doling
out trillions of low-interest candy to subprime applicants
with bad credit, no documentation of earnings, no collateral
and, sometimes, no job!
Is that prudent lending?
Greenspan put this economy-busting juggernaut in motion
and then dumped the whole mess in Bernanke’s lap.
Listen to Greenspan on the subject of toxic CDOs
(Collateralized Debt Obligations) which have infected the
stock market, triggered bank closings, and frozen the
commercial paper market.
“The development of a broad-based secondary market for
mortgage loans also greatly expanded consumer access to
credit. By reducing the risk of making long-term, fixed-rate
loans and ensuring liquidity for mortgage lenders, the
secondary market helped stimulate widespread competition in
the mortgage business. The mortgage-backed security helped
create a national and even an international market for
mortgages, and market support for a wider variety of home
mortgage loan products became commonplace. This led to
securitization of a variety of other consumer loan products,
such as auto and credit card loans.”
Another ringing endorsement, right?
The best summary of Greenspan’s tenure at the Fed was
written by economist and author Henry C K Liu in his article
“Why the Subprime Bust will Spread”. Liu says:
“Greenspan presided over the greatest expansion of
speculative finance in history, including a trillion-dollar
hedge-fund industry, bloated Wall Street-firm balance sheets
approaching $2 trillion, a $3.3 trillion repo (repurchase
agreement) market, and a global derivatives market with
notional values surpassing an unfathomable $220 trillion.
On Greenspan's 18-year watch, assets of US
government-sponsored enterprises (GSEs) ballooned 830%, from
$346 billion to $2.872 trillion. GSEs are financing entities
created by the US Congress to fund subsidized loans to
certain groups of borrowers such as middle- and low-income
homeowners, farmers and students. Agency mortgage-backed
securities (MBSs) surged 670% to $3.55 trillion. Outstanding
asset-backed securities (ABSs) exploded from $75 billion to
more than $2.7 trillion.”( Henry Liu, “Why the Subprime Bust
will Spread”, Asia Times)
"The greatest expansion of speculative finance in
history". That says it all.
Of course, the housing bubble isn’t ALL Greenspan’s
responsibility. He had a lot of help from greedy speculators
who thought they could get rich on someone else’s money. Jim
Kunstler’s latest blog-entry, “SHOCKED, SHOCKED” puts it
“But the really funny part of all this is that the media
columnists are acting as though the American public got
hoodwinked by Al. Which raises the question: just what the
fuck was the public thinking when they bought half-million
dollar houses on salaries under 60-K, taking out
no-money-down, interest-optional balloon mortgages and other
tricked-up contracts? The answer is: they walked into these
arrangements with their eyes open because they thought they
could get something for nothing. They thought the trend of
steeply rising house prices would continue indefinitely and
enable them to wiggle free of any hazard by flipping their
houses to an endless supply of greater fools who would be
there waiting to turn the very same trick. And the smoothies
downstream in the mortgage and banking rackets were no less
guided by avarice when they cooked up their formulas for
bundling half-baked mortgages into tranches of tradeable
securities. Easy Al may have failed to notice what was going
on here, but then so did everybody else from The Wall Street
Journal to the Securities and Exchange Commission.”
This, of course, represents an insidious psychology. It
could only happen in a culture that has come off the rails
mentally, so to speak, as ours has in the sense that nobody
has any sense of consequence, neither the leaders nor those
who affect to follow the leaders". (Jim Kunstler, “SHOCKED,
Kunstler’s right. Everyone was only-too-happy to play
along as long as there was easy money to be made. No one
pondered the ethical questions or the long-term effects on
America’s economic future.
Then the music stopped, housing plummeted and the stock
market began its downward death-spiral.
No one is laughing now.
Still---even though there’s blame enough for
everyone---it still irks us that the wizened former
Fed-chief is using his ill-deserved fame to traipse around
the country plugging his new book, "The Age of Turbulence",
while blasting Bush for the policies he authored.
Here’s another risible quote from Maestro on the wisdom
of loaning to people with bad credit:
“Where once more-marginal applicants would simply have
been denied credit, lenders are now able to quite
efficiently judge the risk posed by individual applicants
and to price that risk appropriately. These improvements
have led to the rapid growth in subprime mortgage
lending…fostering constructive innovation that is both
responsive to market demand and beneficial to consumers.”
Improved access to credit for consumers, and especially
these more-recent developments, has had significant
Oh, yeah----“subprime mortgage lending” has “had
significant benefits” all right. It’s nearly bankrupt the
country and driven millions of people out of their homes and
into the streets. Any more “benefits” and we’ll all be
lining up for handouts at the halfway house.
Probably the most damning indictment of Greenspan
appeared today in the Wall Street Journal in an editorial
“The Fed’s Alibi”. It states:
“The Fed's easy money policies helped cause the housing
bubble and subprime crisis, and now it's being asked to
solve them with more of the same. (rate cuts)…
“The "Maestro" is far less persuasive in his explanation
for why the Fed kept money so easy for so long. He says it
was to "shut down the possibility of corrosive deflation."
But fear of deflation was long gone by the third quarter of
2003, after the second round of Bush tax cuts had passed and
GDP growth clocked in at 7.2% on an annual basis. The Fed
nonetheless maintained negative real interest rates for many
more months to come. This has proven to be the great policy
blunder of Mr. Greenspan's tenure, with ramifications that
are making life difficult for Mr. Bernanke today.”
Ahh, yes; now even the far-right Wall Street Journal has
fingered Greenspan as the guy who manufactured the biggest
equity bubble in history and left the nation hobbling
Thanks, Alan. I hope book sales are brisk.