Deregulation posterboy Greenspan: In "shocked disbelief" in the industry's inability to regulate itself

The good thing that will beome of this is that you laissez-faire
idiots will finally have to give up your myth of market self
regulation.

Although I strongly suspect you losers will be worm food long before
you can admit you are wrong.


Hal


http://www.independent.co.uk/news/business/news/greenspan-says-crisis-left-him-in-shocked-disbelief-971609.html

By Stephen Foley in New York
Friday, 24 October 2008


Alan Greenspan, the formerchairman of the US Federal Reserve, has
dramatically repudiated large parts of his laissez-faire ideology and
joined the chorus of voices saying that the credit crisis reveals a
need for more regulation of the finance industry.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

(need I repeat that for you winger morons?)


Returning to Capitol Hill to testify before Congress, where lawmakers
were once in awe of his intellect and his reputation as a steward of
theeconomy, a bewildered-sounding Mr Greenspan admitted that his view
of the world had been flawed.

Self-regulation by Wall Street had failed, he said.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

(how about that one?)


"Those of us who
have looked to the self-interest of lendinginstitutions to protect
shareholder's equity ? myself especially ? are in a state of shocked
disbelief."

And he went on: "I found a flaw in the model that I perceived is
thecritical functioning structure thatdefines how the world works.
That's precisely the reason I was shocked... I still do not fully
understand why it happened and obviously to the extent that I figure
where it happened and why, I will change my views. If the facts
change, I will change."

The 82-year-old former chairman, who ran the Fed for 18 years under
four presidents before retiring in 2006, has seen his reputation torn
to shreds by those who accuse him of havingcontributed to a credit
bubble which, on bursting, has brought the world to the brink of
economic calamity.

The housing market was inflated tounsustainable levels, in part by Mr
Greenspan's keeping interest rates too low for too long, his critics
argue. And he rejected calls as far back as 2000 to beef up the Fed's
regulation of themortgage lending business in the US, where so-called
"sub-prime" borrowers were handed home loans theycouldn't afford by
predatory lenders who operated without strong oversight.

Those sub-prime loans wereparceled up into mortgage-backedsecurities
and other derivatives, which were sold throughout the world ? and
which have subsequently collapsed in value as US borrowers defaulted
on mortgage payments in record numbers and as house prices slumped.

The explosion of these derivatives markets was based on flawed
assumptions, by traders and their counterparties, about the levels of
risk that they were taking, Mr Greenspan said. "The whole intellectual
edifice collapsed in the summer of last year because the data inputted
into the risk management models generally covered only the past two
decades, a period of euphoria."

Although the former Fed chairman said he had warned as far back as
2005 that markets might be underpricing risk, his testimony yesterday
was a major departure ? following many months in which Mr Greenspan
has declined to identify mistakes he made during his tenure and has
insisted that he could have done little to prick a bubble in the
credit markets in any case.

Yesterday he called for better oversight of the financial markets, and
in particular those issuing mortgage-backed securities and other
derivatives. "As much as I would prefer itotherwise, in this financial
environment I see no choice but to require that all securitisers
retain a meaningful part of the securities they issue," he said.

"This will offset in part market deficiencies stemming from the
failures of counterparty surveillance. There are additional regulatory
changes that this breakdown of the central pillar of competitive
markets requires in order to return to stability, particularly in the
areas of fraud, settlement, and securitisation." And it was not just
Mr Greenspan who was taking a different tone at yesterday's House of
Representatives oversight committee meeting. Committee members showed
substantially less reverence for the former Fed chief and his views
than members of Congress did in the days when he ruled the Fed and was
near-deified for his apparent ability to keep the US economy on an
even keel despite shocks such as the stock market crash of 1987 or the
terror attacks of 2001.

Henry Waxman, the oversight committee chairman, demanded that Mr
Greenspan take his share of the blame for the current crisis.

"For too long, the prevailing attitude in Washington has been that
themarket always knows best," he said. "The Federal Reserve had the
authority to stop the irresponsible lending practices that fuelled the
sub-prime mortgage market, but its long-time chairman rejected pleas
that he intervene. The Securities and Exchange Commission had the
authority toinsist on tighter standards for credit rating agencies,
but it did nothing. The Treasury department could have led the charge
for responsible oversight of financial derivatives, but instead, it
joined the opposition. The list of regulatory mistakes and
misjudgements is long, and the cost to taxpayers and our economy is
staggering."

Christopher Cox, chairman of the SEC, was also on the panel testifying
yesterday, as was John Snow, who was Treasury secretary until 2006.

Mr Cox said that the SEC had been hampered in its oversight of Wall
Street firms by the lack of adequate legislation defining its role,
and Mr Snow blamed Congress for ignoring the Bush administration's
warnings about the systemic risk posed by mortgagesecuritisation
giants Fannie Mae and Freddie Mac.

Fannie and Freddie had a government mandate to promote home ownership,
and drove down mortgage rates by guaranteeing or buying half of all US
mortgages ? but spiralling losses forced the federal government
tonationalise them earlier this year.

Mr Greenspan addressed the root cause of the housing bubble and
theexplosion of risky sub-prime mortgages. "We didn't know that a
deterioration in standards was occurring until 2005. The real toxic
mortgages occurred with the increase in securitisation and the huge
demand from abroad, and to the extent that Fannie and Freddie were
involved, from them as well."
.

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