GREENSPAN SAYS A.R.M. LOANS reason for economy issues

[natina]

Greenspan admits ‘mistake’ that helped crisis


http://www.msnbc.msn.com/id/21134540...2682&#27342682



http://www.msnbc.msn.com/id/27335454

[Mugai_hentaisha]

Well that is a no shitter


Jeesh



TES
William

[hippifried]

Greenspan's a lying sack of shit & always has been.

Does anybody really think that a % of home loans in the US gone bad crashed the entire world financial industry? Better get a grip.

[yodajazz]

Here's the version from the NY Times sent to me. But I dont have the original link.

The New York Times

October 24, 2008
Greenspan Concedes Error on Regulation
By EDMUND L. ANDREWS

WASHINGTON - For years, a Congressional hearing with Alan Greenspan was a marquee event. Lawmakers doted on him as an economic sage. Markets jumped up or down depending on what he said. Politicians in both parties wanted the maestro on their side.

But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

"Those of us who have looked to the self-interest of lending institutions
to protect shareholders' equity, myself included, are in a state of
shocked disbelief," he told the House Committee on Oversight and
Government Reform.

Now 82, Mr. Greenspan came in for one of the harshest grillings of his
life, as Democratic lawmakers asked him time and again whether he had been wrong, why he had been wrong and whether he was sorry.

Critics, including many economists, now blame the former Fed chairman or the financial crisis that is tipping the economy into a potentially deep recession. Mr. Greenspan's critics say that he encouraged the bubble in
housing prices by keeping interest rates too low for too long and that he
failed to rein in the explosive growth of risky and often fraudulent
mortgage lending.

"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," said Representative Henry A. Waxman of California, chairman of
the committee. "Do you feel that your ideology pushed you to make
decisions that you wish you had not made?"

Mr. Greenspan conceded: "Yes, I've found a flaw. I don't know how
significant or permanent it is. But I've been very distressed by that
fact."

On a day that brought more bad news about rising home foreclosures nd
slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken. He noted that the immense and largely unregulated business of spreaing financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today's crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives.

But on Thursday, he agreed that the multitrillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, needed to be restrained.

"This modern risk-management paradigm held sway for decades," he aid. "The whole intellectual edifice, however, collapsed in the summer of last year."

Mr. Waxman noted that the Fed chairman had been one of the nation's leading voices for deregulation, displaying past statements in which Mr. Greenspan had argued that government regulators were no better than markets at imposing discipline.

"Were you wrong?" Mr. Waxman asked.

"Partially," the former Fed chairman reluctantly answered, before trying to parse his concession as thinly as possible.

Mr. Greenspan, celebrated as the "Maestro" in a book about him by Bob
Woodward, presided over the Fed for 18 years before he stepped down in
January 2006. He steered the economy through one of the longest booms in history, while also presiding over a period of declining inflation.

But as the Fed slashed interest rates to nearly record lows from 2001 until mid-2004, housing prices climbed far faster than inflation or household income year after year. By 2004, a growing number of economists were warning that a speculative bubble in home prices and home construction was under way, which posed the risk of a housing bust.

Mr. Greenspan brushed aside worries about a potential bubble, arguing that housing prices had never endured a nationwide decline and that a bust was highly unlikely.

Mr. Greenspan, along with most other banking regulators in Washington,
also resisted calls for tighter regulation of subprime mortgages and other
high-risk exotic mortgages that allowed people to borrow far more than
they could afford.

The Federal Reserve had broad authority to prohibit deceptive lending
practices under a 1994 law called the Home Owner Equity Protection Act .
But it took little action during the long housing boom, and fewer than 1
percent of all mortgages were subjected to restrictions under that law.

This year, the Fed greatly tightened its restrictions. But by that time,
the subprime market as well as the market for other kinds of exotic
mortgages had already been wiped out.

Mr. Greenspan said that he had publicly warned about the "underpricing of risk" in 2005 but that he had never expected the crisis that began to sweep the entire financial system in 2007.

"This crisis," he told lawmakers, "has turned out to be much broader than
anything I could have imagined. It has morphed from one gripped by
liquidity restraints to one in which fears of insolvency are now
paramount."

Many Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies that were placed in a government conservatorship last month. Republicans have argued that Democratic lawmakers blocked measures to reform the companies.

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more "paper." "The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower," he said.

Despite his chagrin over the mortgage mess, the former Fed chairman
proposed only one specific regulation: that companies selling
mortgage-backed securities be required to hold a significant number
themselves. "Whatever regulatory changes are made, they will pale in comparison to the change already evident in today's markets," he said. "Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime."

Copyright 2008 The New York Times Company

[NYBURBS]

Greenspan is so full of shit it is painful. He's going to sit there and talk about wanton disbelief that "self-interest" did not correct these bad lending policies. Meanwhile the government mandated bad lending practices (contrary to what some will now attempt to post), and interfered in the markets to an unprecedented level. Not too mention the fact he abandoned everything he every pretended to believe in the day he agreed to become part of the federal reserve. I don't personally believe in the death penalty but I'd be willing to waive that belief to see this fucking prick hang from a tree limb.

[yodajazz]

Hold up with the lethal injection sauce. I tend to believe Greenspan’s views over your “the government made me do it view”. Nobody told them to go out and push 30 loans on 75 year old women. It’s my understanding the Federal Law was about loosing some statndards in the tightest banks in order to increase home ownership. I believe the mortgage lenders were more about pushing home equity lending on people who already owned homes, like that 75 year woman my s.o. knows about. I remember a time when we were getting 5-6 cold calls a day from financial people asking us if we needed money. It makes sense that they were getting approval from those financiers higher up the food chain. The first line direct people made 4,000 and up per sale. In fact my s.o. worked part time making calls and setting up appointments for the brokers. I never heard anything about the federal government, it was purely about making money of off sales.
They didn’t have any risk, they just found a company (sub prime lenders, I guess). They would make the deal so they could get the commission.

Apparently the subprime lenders were spreading on some of risk, by bundling mortgages into mortgage backed securities. That was a decision by the financial industry. This is what Greenspan seems to be saying. I remember a time when a person could only borrow on up to 80% of their home value. But then some started to lend at 120%. That was a financial decision that increased risk. That was not the government telling them to do that.

The derivative market is largely unregulated. Others have said this including, Greenspan. Even well paid CEO’s have some problem understanding them. According to one financial website. “There has been much controversy recently over derivatives, mostly because politicians, senior executives, regulators and even portfolio managers have limited knowledge of these complex products.” But here is a good piece from 60 minutes which simplifies it some. http://www.cbsnews.com/stories/2008/...n4502454.shtml

So the problem was not the government interfering in the market place. It’s just the opposite. Without regulation people tend to get too greedy for their own good and make excessively risky moves to make more money. Or greed from making your own money can end up hurting the balance of the greater society and the circulation comes back to hurt you in the long term.

[NYBURBS]

So the problem was not the government interfering in the market place. It’s just the opposite. Without regulation people tend to get too greedy for their own good and make excessively risky moves to make more money. Or greed from making your own money can end up hurting the balance of the greater society and the circulation comes back to hurt you in the long term.

Really, because it seems that supposed greed is paying off in the form of government sponsored bailouts, again an ill-advised government venture into the market place. I will post some links later that might give people something to think about, just don't feel like fishing them out at the moment.

[Cuchulain]

BILL MOYERS: Watching Alan Greenspan testify before Congress this week, I tried, I tried very hard not to keep thinking of Ayn Rand. I failed.

The philosopher and novelist Ayn Rand was Alan Greenspan's ideological guru, his intellectual mentor. She was also one of the most amazing fantasists of the last century, the author of two of the most influential books of my generation THE FOUNTAINHEAD and ATLAS SHRUGGED, both timeless best-sellers.

Rand was a hedonist, an exponent of radical self-interest, who so believed in unfettered, unbridled capitalism that she advocated the abolition of all state regulations except those dealing with crime. In the gospel according to Rand, the business community was constantly beleaguered by evil forces practicing, are you ready for this? Altruism! Yes, the unselfish regard for the welfare of others was a menace to greed, and Rand would have none of it.

Alan Greenspan met her as a much younger man in New York and, like so many blossoming capitalists, was smitten. He has since downplayed her influence on him, but as Chairman of the Fed for nearly 19 years he seemed quite Rand-like as he watched Wall Street run wild. Yesterday, like an old warrior still in a fog after his armies have been routed from the field of battle, he expressed shock at how his ideology has failed him. He didn't see it coming, he told the House Oversight Committee. The extent of the meltdown is, "Much broader than anything that I could have imagined," a "Once-in-a-century credit tsunami." The wondrous glories of a free market with no need of pesky oversight had somehow gone wrong. Now you tell us.

ALAN GREENSPAN: I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms…

CHAIRMAN WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working.

ALAN GREENSPAN: Absolutely, precisely. You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.

BILL MOYERS: With his ideological blinders stripped away by reality, Alan Greenspan might well do penance by curling up this weekend not with THE FOUNTAINHEAD and ATLAS SHRUGGED but with James K. Galbraith's new book THE PREDATOR STATE: HOW CONSERVATIVES ABANDONED THE FREE MARKET AND WHY LIBERALS SHOULD TOO. In it, the author asks: "Why not build a new economic policy based on what is really happening?" A fundamental question that surely has Ayn Rand and Milton Friedman spinning in their graves. http://www.pbs.org/moyers/journal/10...anscript2.html

Never let it be said that I passed up an opportunity to kick the ghost of the old battle-axe when she was down.

[NYBURBS]

Yea let me tell you something superstar, if Alan Greenspan really had believed in that then he most certainly would not have become the Chairmen of the most over-reaching quasi-government group in the history of this country. Those statements are about as sincere as would be a current Chinese politician getting up and claiming communism drives their economy lol.

PS- Altruism as used in philosophical circles talks about the sacrifice of one's self or interests to a greater "good" or entity, such as a God, or a nation. She stated that it was essentially evil to ask someone to go against their own interests in the name of some larger entity. That has nothing to do with helping or not helping others, just not doing so at the expense of your own welfare.

[onthefence]

Ayn Rand's version of altruism was based on the notion that it was not a moral imperative that one man should live his life for the sake or benefit of another. She called it "The virtue of selfishness". In this regard one could help another if they found it pleasurable as this was based on selfish motives. She expected that people should exchange the best of themselves for the best of others. So, yes, a free market capitalist system where there are no government controls and the greatest minds exchange the best they have for everyone's mutual benefit would be the application of her ideas. Ayn Rands hero's made things, invented things, built things, employed people - they were not investment bankers. Any Rand hated that we went off the Gold Standard. In Ayn Rands world - there would have been no bailout. These loans would not have been made> The looters and moochers would have gone down and main street would have looked to the brightest minds to rebuild the world. They would have been inventors, philosophers and industrialists. She did not consider the markets especially challenging. Actually, where we are today could be the start of a Ayn Rand novel. She would use her philosophy to get us back on the right track.
Greenspan's application of the philosophy is not where he went wrong - and I don't think that great minds made this problem. I do think that there came a point when great minds saw the problem and looked away or sold it short.