You be the judge.
Former Federal Reserve chairman Alan Greenspan defended the U.S. subprime mortgage market, arguing the repackaging and sale to investors of risky home loans — not the loans themselves — was to blame for the current global credit crisis.
(Nor the Fed Reserve, which pumped $umpty-bazillions into the credit markets....)
Greenspan defended the role of central banks and market regulators, claiming they do not have the resources to deal with criminal or illegal acts.
We know that, Al. But central banks make bubbles happen, Al. Remember? Remember the "Ooooops" you had to utter after the dotcom bubble burst?
"Subprime mortgages were and are risky, but they are worth it," Greenspan said, adding that is better to have a larger property owning class with a vested interest in the system.
Yah--until the repo wagon rolls by. Resentment is a very sharp motivator, Al.
"I'm terribly concerned that we would cut back on the availability of subprime that has enabled a very significant increase in mortgages among minorities in the United States," he added.
The Race Card from Al. THAT'S helpful.
Greenspan acknowledged that a number of people should not have been taking out those mortgages, but that the current crisis was due "not the subprime problem itself, but to the securitization of subprime."
Without that, there would have been significantly fewer defaults, he said.
Wrong. Same defaults, different people holding the bag.
If this news report is accurate, Greenspan is losing his mind.
At the risk of being lambasted by all the commenters at Calculated Risk, I have been making the same point as Greenspan. I blame Wall Street greed. It was the inappropriate use of CDO’s for high yield leverage games that was the primary driving force in the sub-prime fiasco.
ReplyDeleteThe reason the market supplied ever riskier loans to the MBS packagers was because the demand was there, and the demand came from Wall Street. If little fish mortgage lender could not sell sub-prime junk, then these loans would not have been made. So yeah, there was a lot of substandard building material produced, but it is Wall Street firms that use these weak products to construct the derivative structures that come tumbling down this summer.
Of course greed played a part. But the greed was multi-parted: first, the Wall Streeters, as you state. Second, the brokers who originated loans that should NEVER have been originated (but for which they got some pretty damn good fees.) Third, the greed of those who "purchased" homes despite the fact that they simply could NOT afford them--or, after the bump from the 'teaser' rate, would not BE able to afford them.
ReplyDeleteI'll take Doors # 1 and 2 for primary fault; Door #3 is in the game, too...
All I know is that I would really rather not judge Greenspan's nuts.
ReplyDeleteGreed is OK...the real question is what Peggy Noonan asked..."Now You Tell Us".
ReplyDeleteAnd what part do groups such as ACORN have in this as they blackmailed banks into making loans to people who simply couldn't afford them?
ReplyDelete