Finance Crisis chair slams Greenspan: You could've, you should've, and you didn't

WASHINGTON (AFP) – Former Federal Reserve chairman Alan Greenspan denied his policies encouraged the type of risky lending that spurred the financial crisis, in testimony to a federal investigative panel Wednesday.

The long-time Fed chair -- whose reputation as a financial mastermind has been deeply undermined by the crisis -- denied low interest rates and loose regulation had encouraged lenders and borrowers to take ever greater risks.

"The house-price bubble, the most prominent global bubble in generations, was engendered by lower interest rates, but... it was long-term mortgage rates that galvanized prices, not the overnight rates of central banks," he said.

Greenspan appeared before a committee established by President Barack Obama and Congress to examine the causes of the most serious economic crisis since the Great Depression.

In sometimes testy exchanges, Greenspan was accused by commission chair Phil Angelides of failing to prevent "abusive and deceptive" subprime home loans from causing the collapse of the housing market.

"You could've, you should've, and you didn't," said Angelides, a former treasurer of California and Democratic gubernatorial nominee for that state.

Once seen as infallible, Greenspan has come under withering attack since he left office in 2006. His account of events was bluntly challenged by Angelides: "I want to make sure we are not rewriting or ignoring history here."

After being sworn in, Greenspan admitted there were "an awful lot of mistakes" in his 21 years in office, but that he was right 70 percent of the time.

He acknowledged some actions taken in the build-up to the crisis could be included in the 30 percent of times that he was wrong.

But Greenspan also argued that regulators could not be expected to fully predict or prevent crises.

"The recent crisis reinforces some important messages about what supervision and examination can and cannot do," he told the panel.

"History tells us they cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be," he added.

Greenspan also said the development of some complex mortgage instruments was not improper, but boosted "the national policy of making homeownership more broadly available."

After the meltdown, which is thought to have destroyed around seven trillion dollars' worth of housing market value, Obama has vowed to rewrite the rules for banks and lenders whose excessive risks prompted the crisis.

Greenspan swatted aside allegations that the Fed should now see its regulatory role curbed as a result of its failures.

But, he admitted, financial institutions must now be asked to keep more cash on hand to cover transactions and that instruments must be backed by high levels of collateral.

On Thursday the commission will hear testimony from Chuck Prince, a former chief executive of Citigroup, a large bank seen as playing a key role in the crisis.

The panel is made up of six Democrats and four Republicans and has the power to subpoena witnesses. It is expected to deliver its final report by December this year.

This video is from C-SPAN 2, broadcast April 7, 2010.

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Greenspan: I was wrong 30% of the time

Former Fed Chairman Alan Greenspan told Phil Angelides that about 30% of the decisions in his career had been wrong.

This video is from C-SPAN 2, broadcast April 7, 2010.

Watch this video on iPhone/iPad