Now he tells us
"Let's play catch the hand grenade! You first!"
From the Drudgereport
GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005
Thu Sept 13 2007 12:30:11 ET
Former Federal Reserve Chairman Alan Greenspan admits he "didn't really get it" that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network.
Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he tells Stahl. "I really didn't get it until very late in 2005 and 2006."
Even though one of the Federal Reserve governors raised a red flag on those lending practices, Greenspan says there was little he could do. "Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," says Greenspan.
Several of Greenspan's former Federal Reserve governors have since said that Greenspan's policy of lowering interest rates for three consecutive years early in the decade was wrong because it opened the door for the subprime lenders. They think he kept rates too low for too long. "They are mistaken," Greenspan tells Stahl. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he says.
Some believe today's market slide -- U.S. stocks have lost significant ground over the past few months -- could have been slowed had the current Federal Reserve Chairman Ben Bernanke lowered interest rates like Greenspan did early in the decade. Would he act as dramatically and quickly now as he did then if he were the current chairman as some believe? "I'm not sure that's true," says Greenspan. "We were dealing in an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that anymore... I'm not certain I would have done anything different [if he was the chairman today]," he tells Stahl. "I think [Bernanke] is doing an excellent job."
When Greenspan was a young man he had a dream of becoming a great jazz musician and became an accomplished clarinet and saxophone player and joined a jazz ensemble. He realized that he might be better suited for a career in finance when he did a better job taking care of the bookkeeping and taxes for the ensemble than playing.
I bring this up as an example of Greenspan's foresight and awareness. He's not just bright but he has the uncanny ability to see all of the angles. Also the Fed is run by some very smart people. I mean crazy smart. I mean the type of people who would take the LSATS cold just for fun. The type of people who try to determine man's existence through calculus. In other words an army of Spocks.
That is why I am having a hard time believing he did not know about this game of pass the hand grenade and that he was caught unaware of the subprime crisis. I also find it unbelievable that none of his people ever ran a worst case scenario with the sub prime market.
I do find a bit of humor in his response since he is acknowledging the situation but he is not taking responsibility for it. Apparently, it was something he was well known for since he was a kid.
An excerpt from Greenspan: The Man Behind Money
By JUSTIN MARTIN
Greenspan played clarinet in the school orchestra, sporting a blue sweater emblazoned with a white "GW." He was also a member of a school dance band organized by classmate Hilton Levy. The band went by the name Lee Hilton and His Orchestra—"Lee Hilton" being young Hilton Levy's stage name.
Levy was extremely entrepreneurial. He managed to finagle a letter of introduction from bandleader Glenn Miller and, armed with this letter, Levy would case the Brill Building—the famous song-writing factory in Times Square—wandering from floor to floor, hitting people up for free sheet music for the band. Thus, Lee Hilton and His Orchestra's repertoire included standards such as "Bye Bye Blackbird," "Wait Till the Sun Shines, Nellie," and "Sweet Georgia Brown." In deference to their benefactor—and also because it was a huge crowd-pleaser—the orchestra ended each show with Glenn Miller's "In the Mood."
Levy, Greenspan, and an ever-changing roster of anywhere from seven to ten musicians played school dances and proms at George Washington High. They also tooled around their neighborhood performing at socials held by temples and churches. Standard pay was $2 a show per band member.
Levy, who remained in the music business for many years, and legally changed his name to Lee Hilton, remembers bandmate Greenspan as rather abstruse. "He never said anything definitively. It was always double-talk—very much like today." But he also remembers that they had a good time together. "We thoroughly enjoyed what we were doing, and we were getting paid for it," says Hilton.
And the band played.