"There are two fundamental reforms we need - to get adequate capital and, two, to get far higher levels of enforcements of statutes of fraud statutes, existing ones. I'm not even talking about new ones. Things were being done which were certainly illegal and fairly criminal in certain cases. Fraud, fraud is a fact. Fraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it won't work. And indeed, we saw that it didn't." Alan Greenspan Nov. 9, 2010
As many of us are saying... (e.g. Social Security)
More after the break.
Alan Greenspan admitting that the financial calamities were fueled by fraud rising to a criminal level is highly significant. He should know. He played a central role in the financial calamities as Fed Chairman.
Greenspan was a big booster of the housing bubble.
"...Federal Reserve Chairman Arthur Greenspan, endorsed the housing bubble in no uncertain terms. In 2004, Greenspan told a credit union association crowd that "the refinancing phenomenon" had been supportive for the economy and that the use of home equity "helped cushion" declining stock prices. Then Greenspan showed his supposed genius with this advice to home buyers and owners:
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home." Understanding household debt obligations, Federal Reserve Board, Feb. 23, 2004
The message was clear. Get an ARM!
This dominated the economy, created illusions of wealth, and helped fuel the stock market, just as Greenspan suggested in 2004.
This housing "boom" turned bubble had a crushing impact on the economy. One analyst noted, that "By 2005, this bubble had been creating fifty percent of all economic growth in the U.S." That growth is gone and now we're looking at people losing their homes just as massive layoffs are planned and implemented.
And in 2007, there were credible stories about the FBI investigating just what they should have investigated. What did Greenspan do back then to encourage the fraud investigation? What powers worked to make sure that nothing happened as a result of these investigations. Here's
"The FBI is investigating every level of the conspiracy that it believes perpetuated the housing boom and ultimately resulted in millions of Americans losing their houses, investment banks losing billions of dollars and the chief executives of Citigroup, Merrill Lynch, Bear Stearns and UBS resigning." TimesOnline Jan. 31, 2007
Is it important that Greenspan made this statement. Yes it is. But it would have been much more important and a great service to the country had he not fueled the housing bubble against very good advice going back to 2001.
This statement is like the quote people love to use from President Eisenhower as he left the White House on the dangers of the "military industrial complex" dominating our political life. Just as someone should have said to President Eisenhower, Why didn't you do anything about this when your were president? the question for Greenspan is:
Mr. Greenspan, where were you and what were you doing when all of this was going on?