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.
President George Bush wants to overhaul the regulation and control of America’s financial markets. Under the Bush plan, the Federal Reserve (Chairman Bernanke) will become the designated controller of our economic markets and be fully responsible to regulate their stability.
In addition, Bush wants the central bank to poke its regulatory nose inside the tent of every part of the financial services industry in the United States. All financial services, not just commercial services, will be under the scrutiny and powers of the central bank.
The Crowning of Mr. Bernanke
Under the Bush scenario, Bernanke will be coronated as the royal controller of all currency, money management, commerial banks and every type of financial institution in the United States. The Fed, under Bernanke, will become the market stability regulator, something like a throttle control on an engine, empowering it to tinker with every aspect of lending in the country.
Included in the plan is a knee-jerk reaction to the sub-prime lending debacle that designates another bureucratic office to oversee consumer lending issues to insure standardized compliance.
This plan evokes a number of questions the real estate industry must ask itself. Are we federalizing the economy, such as many second and third world countries have done? Is this the socialization of lending in the United States? MORE IMPORTANTLY, what does this action, if implemented mean to the real estate, mortgage and title industrys? Will such action actually benefit the economy and the consumer or, will it serve to further stagnate growth, delay recovery, stiffle free market innovation and release us all from entreprenuerial solutions?
Let’s Remember not to Forget
Let’s not forget that the former Federal Reserve Chairman, endorsed and encouraged sub-prime lending before his convenient departure from office.
Let’s not forget that one of Bernanke’s financial aces has alwasy been to print more money, thus further weakening the value of the dollar in the international markets.
Let’s not forget that in the past the markets corrected and self-regulated themselves, weeding out corruption and bad practices.
Let’s not forget that history clearly demonstrates that intrusive federal tampering with the free market system inevitably leads to a weaker stock market.
Let’s not forget this is an election year and the heat has been turned up in the political kitchen forcing politicians to create solutions to the mortgage mess for the American consumer.
All of us should take a close look at what is occuring and ask ourselves if the solution Bush proposes is the right one and whether long term financial and market stability should be put into the hands of Washington.
REALonomics believes that too much federal control and regulation of the monetary supply and the financial markets is like giving it the power to regulate and ration water.