Greenspan Admits “Mistake” calls the Credit Crisis a 100 Year “Tsunami”
REALonomics has roughed up Alan Greenspan over his support of the concept of subprime lending and his denial of any contribution to the collapse of the credit markets. See the post.
It looks like Mr. Greenspan has finally started to step up to the plate with acknowledgements that his thinking was less that stellar.
Today, in a hearing before the House Oversight Committee Greenspan finally acknowledge, if only by innuendo, that his judgment fell short of what was needed to predict the housing market decline.
“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment.”
With respect to Greenspan’s belief that banks would act in the best interest of shareholders, Greenspan said his thinking was wrong because there was, “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” The current crisis was referred to by Greenspan in his opening statement: “We are in the midst of once-in-a-century credit tsunami.”
In essence Greenspan called this a “mistake” in how he viewed the integrity of banks and mortgage companies. Makes us wonder if he just fell off the turnip truck.
Of the current financial crisis, Greenspan said that it “turned out to be much broader than anything that I could have imagined.”
Unfortunately, Mr. Greenspan has not yet acknowledged his “mistake” in his endorsement of subprime lending as something good for consumers. Perhaps another day.
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Greenspan jumped out of his position just in time. Makes me wonder if he had an idea things were going to go south. I’m tired of hearing him, and others, talk about the downturn…SHUT UP!
If Mr. Greenspan had subtracted 10 years from his milestone dates, he would have had a better picture of realtime activity in the real estate industry.
CMOs were being compromised as early as 1990 and peaked around the time the FED woas compiling their impact data. Investment banks and others realizing the velocity of this segement of the market were implimenting the “greater fool” concept of securitizing mortgage debt.
The signs were there, greed and indifference drove the vehicle.
David, your comment “greed and indifference drove the vehicle” is a highly significant component of the mortgage and housing crisis. It speaks to the view we have maintained in the real estate industry that the end justifies the means. If we ever hope to recover consumer confidence in our industry we need to implement standards-based brokerage, i.e, there are contracts we will not write and mortgages we will not fund. Nice comment with true historical support. -REALonomics