Former Federal Reserve Chairman Alan Greenspan today engaged in an attempt to rewrite history that was so egregious that even CNBC anchor Mark Haines, a free-market cheerleader, was aghast.
The offense was on the first page of Greenspan's written testimony before the House Government Oversight and Reform Committee. "In 2005, I raised concerns that the protracted period of underpricing of risk, if history was any guide, would have dire consequences," he said.
He may be technically correct, but that warning was at best a footnote to his main message, which was that Congress and the White House should more or less leave markets alone, and that the masters of Wall Street will always do what's best.
We now know that Greenspan was devastatingly wrong, and now even Greenspan is forced to concede, as he did before the hearing chaired by Rep. Henry A. Waxman, D-Calif., that the crisis we're facing now "has turned out to be much broader than anything I could have imagined."
Worship before the god of market fundamentalism is blinding indeed.
As a report released Wednesday by the Center for Economic and Policy Research makes clear in its examination of the movie about the nation's fiscal crisis, "IOUSA," Greenspan "allowed for the unchecked growth of a $10 trillion stock bubble in the '90s and an $8 trillion housing bubble in the current decade. ... These bubbles were primarily responsible for the low saving rates decried in the film. Mr. Greenspan also ignored the reckless mortgage lending that led to the subprime meltdown and subsequent credit crisis. In addition, he played an active role in preventing the regulation of credit default swaps, the growth of which played a central role in the financial crisis."
Greenspan repeatedly scorned calls from members of Congress for regulating credit default swaps and derivatives. In a notable speech before the Federal Reserve in 2002 on the emerging shadowy jungle of financial instruments that were starting to be traded with accelerating velocity in world financial markets, Greenspan reduced the regulatory choices to "a trade-off between economic growth with its associated potential instability and a more civil and less stressful way of life with a lower standard of living."
Greenspan, of course, stood squarely on the false choice of growth in a just-trust-them-to-do-right environment.
Now he tells us, as he did at the House committee, "those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief."
Greenspan also admitted under questioning that the economic models he put his faith in were "flawed" and concedes that some of the regulation he opposed should be reconsidered. But Greenspan is still too vested in his own philosophy of how the financial world should work to be a reliable beacon for how we should move forward. For that, we need to rely on the progressive economic experts whose voices were dismissed in the age of Greenspan-worship but who now are showing the way to rebuild our economy.