Greenspeak is back! Former Fed Chairman Alan Greenspan testified today before the Financial Crisis Inquiry Commission. His testimony before the commission brought back memories of 21 years of congressional appearances. These sessions were often dominated by obfuscation and broad philosophical views from earth orbit perspective, far beyond the concept of a 30,000 foot overview.There was no obfuscation by Greenspan about whose fault the credit crisis and housing bubble wasn't. It wasn't his. After getting past that point, the former chairman's clarity of view became a little more clouded. At various times today he identified a number of 'perps.' Here follows a list of those who created the problems. It's Fannnie's Fault Greenspan says that the extent to which Fannie Mae was participating in the securitization of subprime mortgages was not evident until September 2009. This undercut the efforts of the Fed to reduce risky lending. He stated that it was the participation of GSEs in the subprime market that drove up home prices. It's Congress' Fault He stated it was Congress' responsibility to develop regulation, not the Fed. Greenspan also said, "That my views were predominating and effective in influencing the Congress is something you may perceive, but it didn't look that way from my perspective." This response followed a question from Brooksley Born: "Did your belief in deregulation have any impact on the level of regulation in the U.S. and across the world?" It's the Fault of the Credit Markets Greenspan denies that short- term rates set by the Fed had anything to do with the credit bubble and the housing bubble. He maintained that mortgages are pegged to longer term rates and those are determined by the market. It's the Fault of Non-Banker Mortgage Originators Greenspan said the most problematic mortgages were originated by non-bank brokerages. (Note 1: Later he said that origination of subprime mortgages was not a significant problem.) (Note 2: At another time, he said far greater enforcement against misrepresentation and fraud was needed.) (Note 3: Greenspan also said that the Fed regulation had been partially effective in preventing banks from issuing the worst mortgage products. See "It's Fannie's Fault" previously.) It's the Fault of the 'Person Responsible' The reason the Fed did not take more action to issue regulations regarding mortgages, according to Greenspan, was that 'the person responsible' did not bring it to the Fed's attention. Of course, Greenspan also said, previously in the testimony, that he had warned the Fed Open Market Committee in 2002 that the housing boom could not continue. (Note: 2002 FOMC meeting notes did not become public until 2007.)
It's the Fault of Bad Securitization Practices Greenspan says that the origination of subprime mortgages was not a significant problem. Rather it was the way they were securitized and rated that was the big problem. It's the Fault of the Rating Agencies See the immediately preceding topic. Greenspan managed to avoid answering questions with as much alacrity as ever. For example, when asked if rising housing prices had been creating demand for subprime securities, the former chairman deflected the question into a statement about the Fed's monetary policy not being responsible for the housing bubble. Another dodge occurred when Greenspan answered that in order to allow for financial innovation, better capital requirements were needed. The question had been whether testing of new financial products to determine if they actually work would be beneficial. I guess the inferred answer would be that Greenspan would not support pre-market testing. He just didn't actually say that. In spite of the former chairman's confession last year that he had been wrong in his philosophical assumption that self-interests within the market would prevent overleveraging to the point of collapse, he still retains some laissez-faire sympathies. Today he said that if you cannot depend on the counterparty surveillance of the individual institutions then regulation cannot do any better. He took the position that all that was needed was a requirement for sufficient reserves and liquidity. Greenspan managed to take up a couple of hours of FCIC time today without adding any new perspectives regarding the financial crisis. Much of what he said today simply repeated what he has said previously and what he has written in his autobiography. In addition, he proved that he has not lost his ability to make contradictory statements and to avoid answering questions by using 'Greenspeak.'