Former Fed Head Alan Greenspan Gets Grilled on the Hill
Thursday, October 23, 2008SUSIE GHARIB: A mea culpa of sorts from Alan Greenspan today, as he admitted to making mistakes during his tenure as chairman of the Federal Reserve. But in testimony before congressional lawmakers, Greenspan did not take responsibility for what he called a once in a century credit tsunami. As Stephanie Dhue reports, the man who was once called the maestro for orchestrating growth in the markets and the economy, is now under fire for his role in the global financial mess.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The former Fed chairman said he was shocked that financial firms failed to protect themselves and their shareholders. And he confessed he was wrong to think that markets could regulate themselves.
ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: Yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.
HENRY WAXMAN, CHAIRMAN, OVERSIGHT & GOV'T. REFORM CMTE:. You found a flaw.
GREENSPAN: A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
DHUE: Congressman Dennis Kucinich attacked the Fed chairman with Greenspan's own comments from 2004, when he said the traditional fixed rate mortgage may be an expensive method of financing a home.
REP. DENNIS KUCINICH, (D) OHIO: You, Mr. Greenspan, promoted adjustable rate mortgages that fueled the sub-prime market.
GREENSPAN: I went before this Economic Club of New York just days later and very significantly pointed out that the 30-year mortgage is the most important mortgage we have. And that whenever I took our a mortgage, I didn't take out an adjustable mortgage, because I thought it was too risky.
DHUE: Throughout 2005 and into mid-2006, Greenspan dismissed the idea of a housing bubble and said there was no evidence home prices would collapse. He now says his forecast was wrong.
GREENSPAN: The housing bubble became clear to me sometime in early 2006, in retrospect. I did not forecast a significant decline because we had never had a significant decline in prices.
DHUE: Greenspan says economic forecasts are only accurate 60 percent of the time. And he didn't know until 2005 that banks were making bad loans, despite warnings from other Fed officials.
GREENSPAN: There were a lot of people who raised issues about problems emerging, but there are always a lot of people raising issues and half the time they are wrong and the question is what do you do?
DHUE: For some on the committee, like Congressman John Sarbanes, the answer doesn't seem too difficult.
REP. JOHN SARBANES (D) MARYLAND: Certainly, we're smart enough as people to have put basic underwriting standards in place or to preserve basic underwriting standards.
DHUE: While the maestro's forecasting ability is in some doubt, Greenspan didn't hesitate to give his current outlook. He says this crisis will pass, but not until home prices stabilize, still many months away. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
