WORLD> America
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WORLD> America
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Greenspan denies blame for crisis, admits 'flaw'
Updated: 2008-10-24 08:03 He said Thursday that he held to that belief because until the current housing slump there had never been such a significant decline in prices nationwide. He said the current financial crisis had "turned out to be much broader than anything that I could have imagined." Greenspan's much-anticipated appearance before the House panel came as the Senate Banking Committee held its own hearing on what the government is doing now to get out of the mess. Assistant Treasury Secretary Neel Kashkari, who is overseeing the $700 billion financial rescue effort that passed Congress on Oct. 3, said the administration was not only working to get federal purchases of bank stock started quickly but also the program to mop up troubled mortgage-related assets. He also said the government was working to make sure that directives in the legislation to help struggling homeowners avoid foreclosure were being addressed. Kashkari said the plan could include setting standards that banks should follow for reworking mortgages to make them more affordable. He said the administration was considering a recommendation to provide government loan guarantees to cover the reworked mortgages to make the program more attractive to banks. "We are passionate about doing everything we can to avoid preventable foreclosures," Kashkari told the committee. The FDIC's Bair told the same Senate panel that the government needs to do more to help tens of thousands of people avoid foreclosure. She said the FDIC was working "closely and creatively" with the Treasury Department to come up with a plan. Greenspan was asked to defend a variety of actions he took as Federal Reserve chairman -- resisting recommendations to use the Fed's powers to crack down on subprime mortgages, for one. And opposing efforts to impose regulations on derivatives, the complex financial instruments that include credit default swaps, which have also figured prominently in the current crisis. He said that outside of credit default swaps, the bulk of financial derivatives had not caused major problems. He said the boom in subprime lending occurred because of the huge demand for investment opportunities in a global economy, and he blamed the crash on a failure by investors to properly assess the risks from such mortgages, which went to borrowers with weak credit. As for firms that package mortgages into securities, he said, "As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue." On the billions of dollars of losses suffered by financial institutions because of their investments in subprime mortgages, Greenspan said he had been shocked by the failure of banking officials to protect their shareholders from their bad loan decisions. "A critical pillar to market competition and free markets did break down," Greenspan said. "I still do not fully understand why it happened." SEC Chairman Cox told the House panel that "somewhere in this terrible mess, laws were broken." And Snow said that lawmakers should have responded more quickly to his pleas for stronger regulation for mortgage giants Fannie Mae and Freddie Mac, which were taken over by the government last month. In the meantime, Kashkari, the Treasury official overseeing the bailout program, said there has been much progress, resulting in "numerous signs of improvement in our markets and in the confidence in our financial institutions." Still, he cautioned, "the markets remain fragile." |
