BLOG VIEW: Last week, I saw a pair of bizarre and bewildering spectacles on television: Kate Gosselin flatfooting her way through Lady Gaga's ‘Paparazzi’ on ‘Dancing with the Stars’ and former Federal Reserve Chairman Alan Greenspan refusing to take any blame for the housing crisis during an appearance before the federal Financial Crisis Inquiry Commission. Both Gosselin and Greenspan made utter fools of themselves, but the severity of their actions were not equal. At the very least, Gosselin cannot be blamed for taking the global economy on a conga line dance off a cliff.
Greenspan, who left the Fed in 2006, has spent four years trying to rewrite history to justify his decisions and policies. In 2007, his autobiography, ‘The Age of Turbulence: Adventures in a New World,’ displayed a jolting disconnection from reality, particularly when he wrote, ‘I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened homeownership are worth the risk.’
Today, of course, few people would question whether that risk was justified. Greenspan, however, isn't one for remorse. His testimony last week was a strange mix of defensiveness and daffy logic, and he constantly pointed fingers of blame at every imaginable corner rather than at himself.
‘In my judgment, the origination of subprime mortgages – as opposed to the rise in global demand for securitized subprime-mortgage interests – was not a significant cause of the financial crisis,’ he said, adding that international investors with a gluttonous appetite for high-risk mortgage-backed securities were the major villains that fueled the recession. The products themselves, Greenspan insisted, were not problematic.
But what about the concerns that were raised about predatory lending practices and the excessive push of subprime mortgages on people who should never have been approved for home loans? Again, Greenspan tap-danced away from the blame circle.
‘The data show that, in 2004 and 2005, more than half of subprime loans were originated by independent mortgage companies subject to consumer-protection enforcement by the Federal Trade Commission and various state agencies,’ he said.
When Greenspan was reminded that concerns about reckless lending had been raised, he allowed former Federal Governor Edward M. Gramlich to take the responsibility of ignoring recommendations to actively pursue these questions. ‘The whole operation would have come to the Fed board of governors with recommendations, ‘ he said. ‘[Gramlich] chose not to bring those issues to the board.’
Of course, this is preposterous. Gramlich, who died in 2007, was one of the relatively few Fed officials who vocally warned about dubious lenders pushing too-risky mortgages during most of the past decade. And Greenspan knew during the height of the housing bubble that problems were afoot: In a December 2007 interview with the New York Times, the leaders of the California advocacy group Greenlining Institute said that Greenspan shrugged off their warnings of widescale unscrupulous lending practices during a 2004 meeting.
When pressed again during his commission testimony, Greenspan again found it easier to swat away blame at a variety of different sources. When asked about the Fed's dismal record in pursuing fraud, he stated that most of the cases were turned over to the Department of Justice – thus absolving himself of not following through on the lack of enforcement. When asked about the Fed's sloppy work in examining improperly rated securities, he denounced the ‘fundamental problem that the credit-rating agencies gave AAA valuations to certain tranches of collateralized debt obligations, which, in retrospect, were nonsense.’
However, Greenspan wasn't entirely petulant in his insistence on being correct. ‘When you've been in government for 20 years, as I have been, the issue of retrospective [thought] and figuring out what you should have done differently is a really futile activity,’ he stated. ‘My experience has been, in the business I was in, [that] 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.’
In view of these astonishing comments, perhaps the ‘Dancing with the Stars’ producers may want to see about bringing on Greenspan as a celebrity contestant. If anything, he's shown himself to be an expert in doing a two-step to his own unique interpretation of ‘I Did it My Way.’
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
