Lecture Notes for September 13: After World War I: Weber and Keynes: Political Economy 101: "Modern" Political Economy
links for 2007-09-14

Greenspan Concedes Error

From Jeannine Aversa, AP:

Greenspan Concedes Mortgage Dilemma: Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.... Greenspan said he was aware of "subprime" lending practices where homebuyers got very low initial rates only to see them later jacked up, causing severe payment shock. But he said he didn't initially realize the harm they could do. "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he said in a CBS "60 Minutes" interview to be broadcast Sunday. "I really didn't get it until very late in 2005 and 2006," Greenspan said....

When he was at the helm, Greenspan maintained there was little the Fed — which also oversees the safety and soundness of banks — could do about the subprime situation. One of the Fed's governors, however, had raised a red flag about questionable lending practices. "Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," Greenspan said in the interview.

Some blamed Greenspan's interest rate policies for feeding the housing frenzy.... Greenspan, however, defended the institution's actions. "They are mistaken," he said of the critics. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he said.

Meanwhile, some believe that Greenspan would have acted more aggressively than Bernanke in dealing with the current financial crisis. "I'm not sure that's true," Greenspan said. "I think (Bernanke) is doing an excellent job," he said...