BLOOMBERG 10/23/08: Alan Greenspan, Fed Chairman from 1987-2006, conceded to Henry Waxman, Chairman of the House Committee on Oversight and Government Reform, that he may have been a wee bit wrong about the idea that self-interest and an invisible hand would regulate the markets.
Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony. Other rules should address fraud and settlement of trades, he said.
The admission that free markets have their faults was a shift for the former Fed chairman who declared in a May 2005 speech that ``private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.''
Today Committee Chairman Henry Waxman, a California Democrat, said Greenspan had ``the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis.''
Greenspan opposed increasing financial supervision as Fed chairman from August 1987 to January 2006. Policy makers are now struggling to contain a financial crisis marked by record foreclosures, falling asset prices and almost $660 billion in writedowns and losses tied to U.S. subprime mortgages.
Securities and Exchange Commission Chairman Christopher Cox and former Treasury Secretary John Snow also appeared at the House committee hearing.
Addressing the trio that oversaw the U.S. financial markets as the housing bubble developed, Representative John Yarmuth, a Democrat from Kentucky, characterized them as ``three Bill Buckners,'' referring to the Boston Red Sox first baseman whose fielding error some fans blame for the team's loss in the 1986 World Series.
These fucking Congressmen, they do the same damn thing everytime: they ignore or actively oppose regulation at the time when it would actually do some good. Then after disaster strikes (and this is disaster: countries are defaulting at a breathtaking rate—Hungary, Argentina, etc.—emerging markets are fragile because investors are pulling out and putting their money into wealthier nations that can afford to back up debt with guarantees.
Corporations can’t sell 3-month commercial paper. In a week or so the Fed will begin buying it, presumably to ease the market. Is this the trickle-down theory?
Greenspan actively fought regulation, especially during the run-up to the housing boom and throughout the bubble. When Brooksley Born, head of the Commodities Futures Whatsis, tried to get derivatives regulated, she was not only rebuffed, Greenspan and Robert Rubin, Clinton's Treasury Secretary, derided her concerns in front of Congress and managed to remove all of her enforcement powers. She resigned shortly afterward.
AmeriDream President Asks for Congress to Pass Downpayment Assistance
Ann Ashburn, President of AmeriDream, Inc., today released the following statement in response to former Federal Reserve Chairman Alan Greenspan's testimony before Congress regarding the current U.S. financial crisis. Dr. Greenspan identified the stabilization of the U.S. housing market as a key condition for economic improvement.
"We agree with Dr. Greenspan that housing prices must stabilize for our economy to recover," said Ashburn. "Homebuyers currently have little incentive to enter the housing market. Fortunately, we can fix this problem: Congress must reauthorize downpayment assistance funded in part by sellers, commonly known as DPA, which was eliminated October 1st of this year. A bipartisan coalition in Congress has introduced H.R. 6694 to achieve this goal. H.R. 6694 will bring creditworthy "main street" homebuyers - each of whom qualifies for an FHA loan - back to a housing market that desperately needs them. Without DPA, more than 300,000 homebuyers will remain on the sidelines annually. I urge aspiring homeowners and housing industry professionals to contact their members of Congress and tell them to support H.R. 6694. Our housing market depends on it."
Dr. Greenspan testified today that, "a necessary condition for this crisis to end is a stabilization of home prices in the U.S. They will stabilize and clarify the level of equity in U.S. homes, the ultimate collateral support for the value of much of the world's mortgage-backed securities. At a minimum, stabilization of home prices is still many months in the future. But when it arrives, the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards reengagement with risk." His entire testimony can be read here:
BACKGROUND: AmeriDream, a 501(c)(3) charity, was established in 1999 to provide housing-related programs to low and moderate income individuals and families. Many recipients are first-time homebuyers, minorities, legal immigrants, women headed households, and single-parents, achieve homeownership. AmeriDream provides a wide range of programs, including homebuyer education, loss mitigation counseling, community development, and privately-funded down payment assistance. These programs are provided at no cost to the taxpayer. AmeriDream not only seeks to help families purchase homes, but also provide them with the education and other resources needed to be responsible homeowners.
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