Greenspan denies his hands-off policy caused credit meltdown

Former Fed chief says crisis was not his 'oops' moment

Alan Greenspan, former chairman of the Federal Reserve, sprayed blame for the credit crisis on rating agencies, government-sponsored mortgage finance companies and lax law enforcement agencies yesterday in testimony to a commission of inquiry, but he admitted no specific mistakes himself.

He insisted the Fed had done what it could to warn of the dangers of sub-prime mortgage borrowing and an overheating US housing market, and that there was no substance to the claims that he inflated a bubble by keeping US interest rates too low for too long. Instead, he told the Financial Crisis Inquiry Commssion (FCIC) that they would find more answers by examining how the government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac, bought up almost 40 per cent of all sub-prime mortgages issued in the mid-2000s.

And he rowed back on his own comments of 18 months ago, when he had told a Congressional panel that the credit crisis exposed a "flaw in the model I perceived is the critical functioning structure that defines how the world works".

In testy exchanges yesterday, Mr Greenspan said the "flaw" was in the financial models that Wall Street, regulators and the academic community had been using, which led to everyone underestimating the riskiness of mortgage investments.

"The flaw in the system that I acknowledged was an inability to fully understand risks... that were as yet untested. We didn't see what those risks were until they unwound at the end of the Lehman Brothers bankruptcy. We were under-capitalising the banking system for perhaps 40 or 50 years, and that has to be corrected."

Modelled on the bipartisan 9/11 Commission, the FCIC has been asked to report on 22 factors in the onset of the crisis, from fraud and due diligence failings to monetary policy and regulation. Recommendations are due on the President's desk by 15 December.

Mr Greenspan, the chairman of the Federal Reserve until 2006, had been one of the most public advocates of free market capitalism and reducing regulation, and his record has come under attack from critics who claim the Fed did not use its powers to clamp down on unscrupulous lending. Bad mortgages, particularly to sub-prime borrowers, were sliced and diced by Wall Street into credit derivatives that were sold across the world and which ultimately infected the entire financial system. The securities were often mistakenly labelled by credit rating agencies as super-safe.

The former chairman said yesterday that high demand for these securities was the most important aspect of the crisis. Fannie Mae and Freddie Mac, with a government mandate to promote home ownership, were big early buyers of sub-prime mortgages, he said, before demand from European banks kicked in.

Phil Angelides, the chairman of the FCIC, challenged Mr Greenspan's claims that the Fed had warned repeatedly about unscrupulous lending practices, and even issued guidance aimed at improving the information available about the quality of mortgages going into the Wall Street machine.

Guidance should have been followed up by the introduction of enforceable rules, Mr Angelides said. "You could have, you should have and you didn't." And he asked Mr Greenspan if this failure went into the category of "oops".

"When you have been in government for 21 years, the issue of retrospectively asking what you would have done differently is a futile activity," Mr Greenspan responded. "In the business I was in, I was right 70 per cent of the time, I was wrong 30 per cent of the time. There are an awful lot of mistakes in 21 years."

Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
ebookA unique anthology of reporting and analysis of a crucial period of history
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
Tovey says of homeless charity the Pillion Trust : 'If it weren't for them and the park attendant I wouldn't be here today.'
Rhys Williams
commonwealth games
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little