Dear Chairman Greenspan: Remember that cheap money?

Former Federal Reserve Chairman Alan Greenspan went before a House committee today to provide some insight on the "sources" of the current financial crisis.

One of those sources, you might suspect, would be Greenspan’s decision to keep interest rates at ridiculously cheap levels from 2002 through 2004.

Yet he mentioned nothing about monetary policy in his five-page prepared remarks. Instead, the Maestro focused on the failures of the free-market system.

Here, Greenspan explained how investors fooled themselves:

"Subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world. These mortgage backed securities being 'subprime' were originally offered at what appeared to be exceptionally high risk-adjusted market interest rates. But with U.S. home prices still rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, they were wrongly viewed as a 'steal.' "

He also recalled how he mused about investors' lack of concern about the level of risk they were taking in the boom days:

"In 2005, I raised concerns that the protracted period of underpricing of risk, if history was any guide, would have dire consequences."

Yet as Rep. Henry A. Waxman (D-Calif.) noted at the hearing, the Greenspan Fed "had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market," but chose to let them ride.

Greenspan also expressed surprise that the Wall Street rocket scientists who designed derivative securities had failed to account for worst-case scenarios in forecasting how their lab monsters would perform:

"In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment."

So why wasn’t he raising those questions about derivatives in 2005, instead of defending them as beneficial for the financial system (and arguing against their regulation)?

More important -- and, again, missing entirely from Greenspan's explanation of the roots of the crisis -- why did the Fed maintain such a wildly easy-money policy from 2002 to 2004, when the central bank’s benchmark short-term interest rate was no higher than 2.25% the entire period (and was below 1.75% for most of that time)?

Without cheap money, the credit-market bubble could never have reached the epic size that it did.

Greenspan must know this. Admitting it, however, apparently still is a bridge too far for him.

Photo: Alan Greenspan testifies on Capitol Hill today (Mark Wilson / Getty Images)

Comments

[Ken McCue]

Greenspan kept interest rates low so "Sonny Boy" would be reelected. Since Bush was unwilling to create propserity through the usual methods (government investment), it had to be created through a shell game (borrowing). Greenspan's motive was simple--Bush was cutting tax rates and attempting to create an aristocracy of wealth, which accorded with Greenspan's idealogy (he was and is a follower of Ayn Rand). One can no more expect honesty from him than one can from any member of the Bush administration.

[BubbaBob]

It is pretty much as Ken McCue says. The US economy has not been experiencing any REAL economic growth for decades, so what else could the "maestro" do? America was not creating enough new real wealth, and real incomes were dropping, so how do you keep consumption up? Cheap credit.

I've been expecting this credit bubble to pop for a few years now (and I knew back in the 1980`s that it would eventually pop). There is no way out of the current wedgie other than radical wage and employment improvements. Massive government spending on public works projects will eventually bring things around again, but it wont be pretty in the meantime. "Supply Side Economics" was never anything more than a huge feeding frenzy for the rich. Now the party is over and it is time to pay the piper, and the caterer, and the dancing girls, and the....

[peter]

The perfect storm:

- greed,

- banking & Insurance - April 98
http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml

- Internet boom/bust - feb 18 2000 - 7 year ARM become popular as people leave stocks, and move into homes(mortages - MArch 9 2007- Big dip in dow)


- the fed's ambition to keep economy expanding - greenspan just as guilty as Enron Executives - Fed rate gets
lowered 2, but 30 fixed still at 6% (4% spread for banks not bad...)
http://en.wikipedia.org/wiki/Federal_funds_rate

- Nouveau riche 3rd World Oil producing Countries - salevating at the price of oil being above $30/barrel - These countries don't want peace in the middle east - Post 9/11

- Oil Company Mergers - and reluctance to pay drilling rights - hence the mergers (10 oil companies to 6 )

-LNG the new boy on the block
http://images.google.com/imgres?imgurl=http://www.worldenergyatlas.com/Titles/Images/worldlngmap2007big.gif&imgrefurl=http://www.worldenergyatlas.com/Titles/worldlngmap2007.htm&h=333&w=550&sz=132&hl=en&start=13&um=1&usg=__OL8t9l-j7HiZoGqD8y5XJLLhMKs=&tbnid=S330hBK-lzg7fM:&tbnh=81&tbnw=133&prev=/images%3Fq%3Dlng%2Bfields%26um%3D1%26hl%3Den%26sa%3DN


- Hause of Saud http://www.the-spark.net/csart134.html

- East asian appetite for oil increasing ever so rapidly - and the need to build up their miltray to secure there oil (china - india)


I'd love to co-author a book if your interested, fiction/non-fiction; interested? It would be Syriana/The Russia House, maybe we could get Stephan Gaghan to write the screen play.

Peter

[John,Miami,Florida]

I knew that Greenspan was a socialist from about three years ago. He jumped off the bus just before it crashed into the wall. He knew what he was doing and should be castigated for his complicity to discredit capitalism and try to establish credibilty to 'other" alternative economic systems. He is a disease in our system of asset allocation and has deliberately sabotaged our monetary system in order to undermine our republic. Clearly a fiat monetary system is not in the best interests of this country. It all started when Nixon debased our money in 1971 and took our money off the gold standard and as a result began a decline in the wealth of our republic. This also coincides with the oil embargo of 1973 since if the people can't pay more wealth for the oil the oil necessarily has to go down in value. Hence, arab problems, hostage taking in Tehran, Iraq war, terrorism etc......... Need I say anymore?

[Cesar]

As long as companies have a large parts of their assets in stocks they would be susceptible to changes in the stock market. Susceptible to the ups and downs of the market. One day they would be rich and the next day could be broke.

I think that companies should not allow to be in such situation. They should only allow for an insignificant part of their money in the stock market. Only companies that are trying to raise capital quickly should get into the stock market. If a company has a new discovery or developement, but lacks capital to produce it then the investors upon knowing of the discovery would invest in the company. Once the company is well funded and the product is doing well then the company would start buying stocks back to develop a stronger condition.

Large companies should not have as much of their assets in stocks. Rather have their own assets as they develop them from sales of products and services, not from sales of stocks. The stock market is too volatile.

[Andrew Sroka]

Wow. Ken McCue's ignorance is stunning. Please let us not hold people responsible for their actions and choices. Let us put on our tin foil hats and blame the vast Bushonian Conspiracy. You really ought to read the article before you make such absolutely irrelevant comments.

[Web Smith]

After pushing for the Telecom Deregulation Act, which was really government theft of private property, in order to create the .com bubble and the need for massive amounts of money, which the Fed and its associated banks were more than happy to provide at higher interest rates, the Fed had to lower the interest rate when the bubble popped in order to replace the lost economy.

This is when the housing boom was artificially created. It has since been propped up by more interest rate cuts and legislation, but since the housing bubble was not created based on anything other than an imaginary demand, it was doomed to fail. It just took a little greed from Wall Street to push it over the edge.

http://ewebsmith.com/finance/thecause.html

[dikkiedik]

Why are so many people blaming "the rich" for all our troubles? That doesn't make any sense.

[DisFisCon]

I seriously doubt that Alan Greenspan was motivated by a desire to see Bush reelected or to push us in a socialist direction. I suspect that he just made a critical judgment error. He believed that the incentives of the few knowledgeable market players would push them toward nurturing a long-term market expansion. I don't see how he could have missed the tendencies of corporate leadership, from GM to HP, to focus on short term profitability (and those important quarterly bonuses) to practically the exclusion of all else. Why should the hedge fund traders be any different? Their compensation, in commissions, wasn't tied to long-term performance. It was tied to quickly transfering these toxic "assets" to somebody else's books as quickly as possible, to bring in cash to leverage another quick "bundle and dump" operation.

We need our leadership to be bold yet skeptical of human frailty.

It may still not be too late to fix this, but supporting these toxic assets isn't the way out. It's simply digging the hole deeper. And at the same time, we're once again lining the pockets of the thieves who threw "reasonable risk" out the window.

We need to let the free market rain a little disaster on the extremely affluent. And if I personally have to lose a hundred K or so of home value in order to make sure that these snake oil salesmen never ever get the chance to drop junk bonds, or CDO's, or whatever the flavor of the month crappy asset with a slick, untested mathematical model behind it, on an unsuspecting and trusting investing public, then so be it.

Housing prices have to drop, and the easiest path to that solution appears to lie squarely in the direction of allowing the CDO's and MBS's collapse, or at least massively deflate in value. I see the government stepping in to set rules to revalue mortgage debt to avoid foreclosure (perhaps allowing homeowners to pay a fee and "reset" their loans to a government-fixed interest rate and duration, with the remaining principal no less than $10K over the appraised value of their homes. That would decrease the risk on these loans by shedding much of the riskiest part (the part of the loan that isn't secured by actual home value), prevent disruptive foreclosures, and help quickly drop housing prices back to the point where "normal" people, unwilling to take on unreasonable debt, could afford a decent house again.

This easy credit thing has been a disaster for the country. Easy credit instantly translates to higher prices. Homes weren't the only thing affected. Prices for many big-ticket items increased dramatically over the past few years because of easy credit, including college tuition and the cost of medical treatment. The only way to back away from easy credit is to punish the creditors who have offered this temptation, punish the debtors who so willingly were tempted, and find a way to split the pain of forced bankruptcy between these two parties.

[Firebird]

How about following the law (the Constitution), and putting the power to issue money back into the hands of Congress, where it belongs? And how about making it ACTUAL money, instead of credit that is backed by nothing and can be created at will? An early draft of the Constitution gave congress the power to issue "bills of credit", but that phrase was removed, and therefore, Congress doesn't have that authority, nor the power to give that authority to the Fed.

Article 1, Section 8, Clause 5: "To coin Money, regulate the Value thereof..."

Notice that it says "coin". Federal Reserve Notes are nothing more than bills of credit, they are backed by nothing but debt, and they are illegal. And I won't even go into the fact that the commercial banking system is permitted to effectively lend money it doesn't even have.

Gee, do you think there was a reason that the framers didn't give the government the power to issue "bills of credit". If the Constitution doesn't give them the power, they don't have the power.

[Mac Stevens]

There would be no giant bankruptcies if corporate shareholders were not granted limited liability by the government. If you could only buy stock which carried a proportion of the liability as well as the chance for profit, you would carefully choose such investments and oversee them diligently. Or, you would buy bonds or other low-yield low-risk investments.

All the arguments I see that favor goverment-granted limited liability are along the lines of "it encourages investment", "it's good for the economy". Well, it encourages irresponsible investment. And when the bankruptcies come, we all seem to miss the fact that the bankruptcy is the point at which the investors dump the load on others, and pretend to be victims. Good for the economy, huh?

Take another look at this assumed "right" to purchase limited liability stock. Think about it. It contradicts your right to recover damages due.

Limited liability = limited responsibility. You'll never legislate responsibility into an entity that is fundamentally irresponsible. Think about it.

And, yes, we should not give such massive secretive power to folks like Greenspan. But that's on us, too. Greenspan is one guy. One guy. Blame yourself for giving the power.

[etfaver]

Greenspan should be imprisoned for his actions of non-action and letting Cheap MOney ride and plunge us into the mess we are in today. Because of him we are all now at risk when we want to retire.

[john Smith]

How many people know that Greenspan is on the board of the Hedge Fund of John Paulson (pls do not mistake for Henry Paulson).
The fund is up 19% for this year (when most of the market is down 40% or more). The fund was up 450% and raked billions last year by bettting on the mortgage melt down.
This year the fund shorted most of the banking stocks in UK and reaped billions.
So as Dr. Greenspan testifies and expressed his shock -- was he not aware of the short sales of the UK banks of the hedge fund he represents?
Go figure...

[Gorefan]

I remember an economics professor had something taped to his door that went like this:

"With enough data and a good model, an economist can make as good a guess as anybody else."

[John Nagle]

It's been blindingly obvious for years that there was a housing bubble. We (Downside) predicted a mortgage crisis and the collapse of Fanny Mae in 2004. Greenspan's job was to stop runaway housing inflation. He didn't do it.

I thought Greenspan understood the problem, but refrained from doing anything because of the political repercussions. But, from today's testimony, it seems that he truly believed that a free market was self-correcting, and that rational self-interest would prevent the players from destroying themselves.

History will not be kind to him.

[Caleb]

Andrew Sroka: I am a level-headed American who shares the same view as Ken on this issue and know that we are in the strong majority among those who have a brain and choose to use them. The complicity of this Bush money-grabbing machine for the wealthy has been completely in our face throughout his presidency - very thinly veiled. It seems to me you have to choose ignorance in order to not see the evidence of this in so much this presidency has done. Saldy, too many in America have never been taught the art of critical thinking nor seem to understand basic cause and effect relationships.

I think it's preposterous to suggest that the monster this planned derivatives market has become is the fault of those who got caught in the bubble. There were many bad decisions made by consumers, but those planned and conspired in creating this concoction are to blame. The writer of the article makes a great point in that Greenspan played a huge part in fueling this derivatives mortgage sham by keeping money cheap.

Looks like Andrew has resorted to the conventional Conservative tactic to discrediting other's ideas: Name Calling. No discourse, no heed to reason, just attack the other side. While I may be guilty of this too, I don't think this country is going to heal politically until we can grow up in how we can interact a little more constructively.

[Zenjon]

Greenspan claimed today he was "shocked" at the breakdown of the credit markets. I seem to remember in Casablanca Captain Renault being "shocked, shocked" to discover that gambling was going on at Rick's...("your winnings, sir.")

[Ivan Grosz]

The mortgage backed securities and credit default obligations are not traded in the regular stock market which is fluid and cannot freeze. They are traded in a second tier market with very limited participation and which can freeze in case of panic.
With mark to market accountiung rules these iliquid assets have no book value and banks and investment houses are left without capital.
A global financial disaster will follow.
Good regulatory oversight may have recognized the flaws of these new financial products and their marketing problems.

[Joe T. Plummer]

The post reads "Why are people blaming the rich.. that does not make any sense".
It makes perfect sense.
The USA economy is run by the rich and powerful elite. Can you name a poor politician? Poor and working class people do not control Wall Street or our economy. They are at the mercy of it. The rich get richer and the poor get poorer. Profit always comes before people. Business ethics is a college joke. God bless America.

[larry]

Greenspan's 17 rate hikes in 2 years killed the economy. He should co-star with Mr. Bean in a movie doing idiotic actions exuberantly that lead to disasters.

[lester]

In checking on our federal debt on the internet, I discovered that the Federal Reserve Bank holds about $5 trillion dollars out of the $10 trillion owed. Then, according to Wikipedia, debt held by the FRB is basically money that was "printed" up for the government to use without collecting taxes or borrowing the money. Wikipedia goes on to explain that this "monetized" debt expands the money supply many fold through our reserve banking system. Many people discussing the wild hyperinflation in real estate cite the low interest rates but somehow do not mention this direct infusion of trillions of de novo dollars. Since inflation is caused by excess currency produced by the FRB and since it is inflation when an old house triples in value in a few years, perhaps there is a relationship between these things. Can any economist out there explain this to me? A few days ago, Paul Krugman was asked on NPR, "Fresh Air" if the FRB was going to get the $700 billion by "printing" it up. Krugman thought that idea ridiculous. Of course not he said, the FRB will sell the government debt it has on its books to get the money!! If you'd like to check this out, go to http://en.wikipedia.org/wiki/United_States_public_debt.

[forgotten%20citizen]

Please help me to verify this. I remember when Greenspan was Federal Reserve Chairman, some people already worried about housing bubble burst and housing price would go down eventually. If I remember correctly, Greenspan response was as long as economic recovers soon enough, more people will be able to afford to buy the houses to keep the housing sustain. I did not buy it because being wage earner, even with the best pay raise would not keep pace with housing price escalation. at that time, no one explain why the housing cost kept going up when the economy was still bad . Of course, the fraudulent lending practice was one of the reason. many of us did not know definition of sub prime mortgage until 2007. It is too late. A lot sign pointed something was wrong couple years ago. Not many people bother to point and make stop

[The Hana Kid]

Blame, lets not forget who's also to blame. Can you say Bernie Frank and Chris Dodd to name two. Heck, just about the entire Senate and Congress is to blame. They're the ones who make the rules. You can't spin this one.

[Steve]

I don't remember the Los Angeles Times Real Estate Section interviewing any of the economists that were telling people that the housing bubble was real back when Greenspan said it wasn't.

[Amin]

---------Greenspan kept interest rates low so "Sonny Boy" would be reelected. Since Bush was unwilling to create propserity through the usual methods (government investment),-------

Prosperity is never created through government investment. It is created through liberty.

[sideswiped]

The ecomomic history of this country is surrounded by booms and busts dating back to our inception. Our virgin country started out with a huge deficit from the war with England and we had to borrow lots of loot from France to keep our economy going. Fiscal responsiblity is not something that seems to be much of a priority as long as the monied get their hands on the loot and pass it down.

[brianoh]

It was blatantly obvious that Greenspan wanted to prop-up an overpriced Stock Market circa 2000/2001. As we all know, this required the ultra-low interest rates. Stocks were overpriced and he allowed the bubble in stocks. He then created the bubble in housing to support it. This prop-up of stocks created a massive gain in "wealth" for the holders of stocks. In the 10 years to circa 2000, stocks increased approx. 800%. As many of us new then, and all of us know now, these policies were plainly wrong. The excuse then as it is now, was and is to prevent a recession. These bankers have a responsibility to prevent these bubbles. It is illogical and wrong to suggest that it is right to allow massive bubbles by printing cheap money and then to use the same policies to prevent a correction. It is also wrong to blame Keynesian economists. As with all things, while some things are right in principle, as with all things, they can be overdone. We can see the result of 20 years abuse of monetary policy to inflate asset prices. Who knows why they do these things, but it is obviously bad economics. It appears that we have the wrong people running the central bank. Quite simply, they have highly-flawed policies that create bubbles that they then attempt to prop-up.

[DAVID BLOCH]

Clearly Greenspan '[like Aristotl'e] thought that money is not a commodity but only a form of measurement.
This accounting measurement is focusing on the value of purchases , which in turn are a reflection upon their contribution the standard and quality of living
Building more houses [than the market can stand] is highly supportive to raising the standard of living
The houses are still there so whats everyone complaining about ?

SALT MADE THE WORLD GO ROUND www.salt.org.il

[David E. Connollyy, Jr.]

Hindsight is 20/20, and I don't remember Henry Waxman bringing any of this stuff up when he should have, either. Blaming Greenspan for everything is just too easy, and it doesn't solve the problem. We need to unify behind transparent market practices and good accounting procedures both from our government, and our financial sector. For that matter, we should demand some transparency from our energy sector as well. What is taking so damn long to get the tax incentives, and regulations in place to wean ourselves off these fossil fuels, and on to some clean technologies? This is a bad time, when you can't trust anybody to do the right thing, be they our representatives in government, or big business, and if some of these countries don't get a handle on their population growth, things are going to get even more cut throat.

[Ransome]

Cheap money is an important element to the problem. It is basically supply side economics, it is a monetarist approach which we continue to support.
It is the belief that injecting money into the economy spurs growth. That is true only if Main Street, the value adding sector restrained by lack of capital.
Starbucks may take the cheap money and expand, but the actual market for their products may not support the growth in a sustaining way.
Starbucks has a finite need for cheap money.
Wall Street produces no goods. It moves money and collects fees. The cheap money was used to create more securities that created more opportunities for fees.
Housing was the asset class that became the base of their pyramid scheme of securities. Dumb money poured in to look for better returns as a result of low interest rates.
When Wall Street prospers and Main Street is flat, there is something wrong with the economy. Any bubble in asset price is solely due to Wall Street manipulation.
Main Street changes slowly because Main Street money does not move at the speed of light, money is converted to durable goods or services many times along the way.
The excess added value becomes growth. There are no short cuts.
The president was very, very wrong to classify the Financial Sector as one of the three pillars of our economy. The Financial Sector removes money from Main Street.
The Financial Sector used the cheap money and set up their own internal casinos for their pleasure. The taxpayers are picking up the bad bets.
Propping up Wall Street to maintain the status quo will ultimately be a mistake.
The Fed should raise interest rates as Main Street has less of a demand for cheap money and savings needs to be encouraged.
Consumers need to save, not spend. Wall Street needs considerable downsizing. Lacking demand, cheap money is trouble.
Why isn't this blog formated for Firefox?

[Rube Vogel]

The "cheap money" policy was not a problem in itself. It created an environment that required more regulation. And there is no question that Greenspan was wrong regarding the need for regulation. Short term greed beats long-term responsibility every time.

The real scandal is that all these lessons could have and should have been learned during the S&L crisis. Our representatives in the government, Republicans & Democrats were so busy sweeping the whole mess under the carpet that they learned nothing.

[rick]

What would one expect from one of the 'old school' buddies of the upper elite? Of course he won't admit a thing, he wasn't effected one bit by what happened. His capital is safe, you can be assured.

you cannot, in this day and age of american societal devolution, expect: responsibility, nor can one be held responsible for their actions, to any great degree. To do so is considered crass these days, and doing so would destroy one of the great myths of modern American society: ...it wasn't my fault. Drugs, family, TV, lack or excess of them, bad school, bad genes, bad environment, the list is now almost endless.

Gone are the days when a man could and would stand up and say, "Sorry, I made a mistake, please accept my apology."

Do you think Greenspan, Chris Cox, or any of those other fat cats that were making $10,000+ from the same system that they now decry [but don't take any responsbility for, oh no] lost much money, will lose much more, or would even consider making good the disaster they caused by injecting such crap into our financial system? Anyone that formerly traded in those CDO's etc, aught to be pilloried, dragged through main street america in a pick-up having rotten eggs and veggies tossed at them. Then they should be forced to work a regular job, an hourly wage job, for the number of years that they would have gotten a prison sentence.

However, that's just a fantasy, and as with the federal bailout plan, they'll leave the working men and women of america to pay for their education. Expect to see this every 25-30 years. FDR, hailed as one of the greatest presidents we ever had, Democrat, 'rescued' us from the economic excesses of a 'free market' that had it's own controls-and he was vilified as a socialist by many.

[Mark]

@Caleb: "The complicity of this Bush money-grabbing machine for the wealthy has been completely in our face throughout his presidency - very thinly veiled. It seems to me you have to choose ignorance in order to not see the evidence of this in so much this presidency has done."

Whoa Dufus! Did you not know that Greenspan was also the Clinton Fed Chairman? Did you not know that he went through two presidencies of Clinton as well?

Did you also not know that both Clinton and Bush are members of the Council on Foreign Relations, where a One World order is discussed? Do you really have no clue how much the Americans and the peoples of other nations are being manipulated? Do you really think it freaking matters which party is in "power"? It doesn't!

Americans are so stupid nowadays. We're spoon-fed everything from news to our mindless TV Shows and product placements.

Did you not see how much money these "bankers" and others are making? American taxpayers got one put over on them. The world's peoples got one put over on them. You think we're not part of a one-world order right now? We are. It just doesn't look like what you might think it to be.

Money is the root of all evil, a wise man once said. The banking industry has us by the short hairs.

[Steve]

You have two to blame for this debacle and that is GW and Greenspan, both Harvard grads of course. I own 4 rental houses and almost every tennant I had under the GW/Greenspan era moved out and was able to qualify for amazing sub prime loans with no money down, some of these people barely met my rental critiera, yet under GW/Greenspan were buying $400K houses with no money down. These flakes simply showed up and they got a loan under these morons. This is the root cause of this and both should be punished, yet never will. I am still trying to understand what the hell Greespan is saying with his elitist language. Please note I was a Republican and never again after these two. These two morons just put Obama in office. Go back to Harvard and teach to more idiots like you.

[Monk]

Greenspan warned everyone that this was going to happen, but nobody listened!!! Do you remember his words "IRRATIONAL EXUBERANCE?"

[Cynical Observer]

These are just more of the same profound-sounding but ultimately empty statements that he's been making for the many years in which he's been hailed as some kind of genius (apparently, because people thought that if they couldn't understand it, that was their own fault). It's way past time that the "Greenspan bubble" of obscurantism as brilliance was burst, unfortunately way too late. Let's also recall that he served under administrations of both parties.

But the historical fact is folks, however politically unpalatable to some, the sub-prime lending that begat the problems at Fannie/Freddie that begat insane amounts of leverage with derivatives too bizarre for even their originators to understand --- that all began with a politically motivated push to make mortgage loans to people who were not creditworthy.

Let's not confuse good intentions and good economics. They may not be the same.

Banks knew they could -- indeed, they were under political and regulatory pressure to -- write mortgages for people who couldn't afford them. They also knew they could re-sell those weak mortgages to Fannie and Freddie, who knew they could issue securities based on those same mortgages because of their implicit Federal government guarantees. And thus the pyramid of worthless assets grew.

It's one thing to insist that lending practices be bias-free for credit-worthy borrowers. It's quite another to insist that non-credit-worthy borrowers be 'excused' from meeting the normal rules because, perhaps, they belong to a group that may have experienced lenders' bias in the past. Indeed, the tyranny of credit scores we now live under, where these scores become arbiters of not only finance but employment, security clearances and the like, was developed to allow banks to address claims of bias with objective scores, as I understand. But what happened? Political pressure on banks meant the scores were ignored for 'victims' but not, of course, for the rest of us.

And yes, there is certainly blame to go around, at all levels, from all involved (banks, ratings agencies, regulators and so on) and parties. Nobody is entirely blameless and that's why it's easy for so many of the guilty parties to absolve themselves of blame. However: most of the pressure to lend and the defense of Fannie/Freddie came from Democrats, who were also the top recipients of Fannie/Freddie campaign contributions. The few attempts, meager as they were, to reform the Fannie/Freddie conduit that ultimately enabled this process, came from Republicans.

[TrueFan1947]

So much for "supply-side" economics! So much for the wonderful "free market"! What all that theory allowed is for the Wall Street sharks to get what they want for "free". THAT is what Reagan, Bush, Buckley, Friedman, Cheney, Perle, Wolfowitz and all these other "compassionate conservatives" have REALLY been all about. "Deregulation" and "privatization" have been their mantra. They have HATED the idea of "big government" when applied to governmental oversight of corporate and financial institutions, but they LOVE the "big government" when our tax dollars are used to subsidize corporate R&D or to give huge profits to "defense contractors". They HATED "big government" when it means helping common citizens with social programs that are desperately needed. THOSE programs are attacked as "entitlements". Welfare and Social Security are attacked! Unemployment insurance is attacked. Universal healthcare...the very IDEA of it...is attacked. THESE are all derided and labelled "entitlements". When Reagan and Bush instituted massive tax cuts for the very WEALTHIEST of our citizens, THAT was NEVER attacked as "entitlements". Tax cuts for the wealthy are always supported by these "compassionate conservatives" on the flimsy and transparent basis of "trickle-down" economics! Greenspan is a charlatan and a tool of the elite. Anyone who has ever undertaken a serious study of American history knows the record. Corporate elites have historically used all the considerable power at their disposal to prevent, thwart, erode, destroy, and reverse any attempt by the general public, through our elected officials, to regulate business activities in such a way as to ensure public safety and welfare.

Karl Rove, Richard Perle, David Addington, Douglas Feith, and all the rest of these neoconservative, shock-troop apologists for corporate thievery have succeeded in forging an unholy alliance with the very conservative Christian evangelical population amongst our citizenry. The Bush Administration has shamelessly degraded our entire quality of life, justifying all manner of destruction to our Constitution, our infrastructure, our citizens' food supply, the safety of our communities, our military, and our very lives. They have done all this while preaching "faith-based initiatives" and "family values"!

Greenspan has been an integral power player in the entire affair. He has preached deregulation for decades! He pretends now to be surprised and shocked that the banks and mortgage lenders did not do a more conscientious job of "self-regulation". This stance by Mr. Greenspan is an INSULT to our intelligence! Does he REALLY expect us to believe that he did not know what would happen if the wolf were put in charge of watching the henhouse? Business has NEVER willingly and effectively regulated itself in the public interest. NEVER! Business HATES the very IDEA of regulation. What part of that equation does Greenspan not understand? The common citizen understands that you don’t put the wolf in charge of the henhouse.

The “economists”, especially Milton Friedman and his disciples, that have spouted all this rhetoric about free markets and supply-side dynamics and privatization have ALL been hoodwinking the American people for decades! A RESPONSIBLE First World society would have a RESPONSIBLE public sector that would RESPONSIBLY manage the business cycle in a way that would bring the greatest benefit to the society as a whole. American government has ALWAYS been hamstrung by our corporate elites, EVEN during FDR’s Administrations. At LEAST during the New Deal SOME sector of the elites acknowledged their responsibilities to society in general. This neoconservative onslaught under Reagan, Bush et al has done everything in its power to reverse whatever safeguards were put in place to protect the common citizen! They have pretty much succeeded in trashing our nation!

[TrueFan1947]

Lest anyone misunderstand, the two "political parties" are both owned, operated and controlled by the corporate and financial elites who own, operate and control the "economy". So of COURSE, the Clinton Administration was JUST as complicit in this debacle as Reagan and the two Bushes. Ideology is nothing more than a mask for interest. All the things I said in my PREVIOUS post do NOT absolve William Jefferson Clinton one IOTA. He is JUST as complicit in this debacle as Nixon, Ford, Carter, and the rest. The common citizens always end up getting hosed while the elite get fat! What a tragic record for the wealthiest nation on earth! We are the most inegalitarian of all the First World nations, and THAT is by DESIGN and PREMEDITATION!