|AP / J. Scott Applewhite|
Former Federal Reserve Chairman Alan Greenspan testifies Wednesday before the Financial Crisis Inquiry Commission.
Former Fed chief Alan Greenspan faced the proverbial firing squad, or in this case the congressionally appointed Financial Crisis Inquiry Commission, to answer questions Wednesday about his leadership choices at the Fed with regard to some key factors that triggered the financial implosion in 2008. —KA
The New York Times:
A particularly sharp exchange occurred between Mr. Greenspan and Brooksley E. Born, a panelist and former regulator who famously clashed with Mr. Greenspan and members of the Clinton administration over derivatives regulation — and lost that battle. In tough questioning on Wednesday, Ms. Born called on Mr. Greenspan to defend his longtime deregulatory bent.
“You appropriately argue that the role of regulation is preventative,” she said. “But the Fed utterly failed to prevent the financial crisis. The Fed and other banking regulators failed to prevent the housing bubble, they failed to prevent the predatory lending scandal, they failed to prevent our biggest banks and holding companies from engaging in activities that would bring them to the verge of collapse without massive taxpayer bailouts.”
“Didn’t the Federal Reserve fail to meet its mandates, fail to meet it responsibilities?” she added.
Mr. Greenspan replied that there was a failure: an underestimation of the “state and extent” of financial risks and the ability of private counterparties to assess them, and he said the banking system had been undercapitalized for 40 to 50 years.
“That has to be adjusted,” he added. “But the notion that somehow my views on regulation were predominant and effective at influencing the Congress is something you may have perceived. But it didn’t look that way from my point of view.”