SUN EDITORIAL:

Explaining the financial mess

Former Fed chairman should take some of the blame for housing collapse, credit crunch

Saturday, Oct. 25, 2008 | 2:07 a.m.

When historians write about the reasons for the global financial turmoil unfolding before us, they’re likely to assign at least part of the blame to former Federal Reserve Chairman Alan Greenspan. As head of the Federal Reserve Board, which sets the nation’s monetary policy, Greenspan oversaw a period this decade of extremely low interest rates and unregulated subprime loans that landed us in the housing and credit mess we find ourselves in today.

In sobering testimony Thursday before the House Oversight Committee, Greenspan conceded he had made faulty economic assumptions based on the mistaken belief that banks would be more careful than they were. Greenspan also called the financial calamity a “once-in-a-century credit tsunami.”

We beg to differ that this was a tsunami, because a tsunami is a natural disaster. This disaster was definitely man-made as Greenspan, of all people, should know.

When Greenspan ran the Fed, he was one of the most powerful men in the world. But history will record that he was blinded by the belief it was unnecessary to regulate the investments that financial institutions were making in risky mortgages. Indeed, he had repeatedly forecast during his tenure that a collapse of housing prices was unlikely.

Rep. Henry Waxman, D-Calif., the committee chairman, put it succinctly when he said: “Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong.”

Greenspan was an adherent of the anti-regulation philosophy, also embraced by the Bush administration, that over the past several years adversely affected not only financial matters but also many other aspects of federal policy, ranging from environmental issues to product safety.

This is the type of backward thinking that should be replaced in Washington by political leaders who understand that regulatory controls, when used properly, are valuable tools that can protect citizens and make our nation stronger.

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By KDR81

Oct. 25, 2008

8:26 a.m.

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He blindly believed in pulling the levers of the economy, lowering interest rates to speed up, raising them to slow down.

He blindly believed that he could manage the economy.

He blindly believed the US could absorb economic shocks with just a little inflation.

Not enough regulation was NOT the source of the problem. Fed rate cuts were.
By gunowners4obama

Oct. 25, 2008

8:39 a.m.

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And will the American people also go down in history as culprits, for voting repeatedly for Republicans with the extreme ideology of deregulate, deregulate, deregulate? This has been coming since Reagan, who was also a major part of the problem.