FORMER Federal Reserve chairman Alan Greenspan came under fire for failing to take measures to prevent the financial crisis yesterday, but defended himself by arguing banks – not regulators – were to blame.
In a heated appearance at the Financial Crisis Inquiry Commission in Washington, Greenspan insisted reckless mortgage lending and the securitisation of home loans sparked the subprime collapse of 2007.
The 84-year-old, who headed the watchdog between 1987 and 2006, played down the influence of consistently low interest rates set by the Fed. He said: “It was the global proliferation of securitised US subprime mortgages that was the immediate trigger of the current crisis.”
Although he said the Fed warned on the need to curb the US’ cheap debt-driven housing boom as early as 2002, Greenspan argued the Fed did not have the same enforcement powers as other regulators to clamp down on risky lenders.
But his comments met with sharp ripostes from the commission. Chairman Phil Angelides suggested there was a reluctance on the part of the Fed to step in and regulate companies. “You could’ve, you should’ve and you didn’t do enough to regulate,” he said.
Brooksley Born, formerly of the Commodity Futures Trading Commission, slammed the agency for “utterly” failing to prevent the financial crisis, while Mark Zandi of Moody’s Analytics said aggressive monetary policy in the wake of the technology sector implosion in 2000 contributed to the inflation of the housing bubble.
Separately, current Fed boss Ben Bernanke used a speech in Dallas to strike an upbeat note on the US economy. He said growth would slowly reduce unemployment, but warned on the budget deficit.