Friday, October 24, 2008

Greenspanning The Crash?

Former Federal Reserve Chairman Alan Greenspan's congressional testimony yesterday on the economic crisis was surreal. During his appearance before the House Government Reform and Oversight Committee, Mr. Greenspan, and Committee Chairman Henry Waxman of California and other Democrats, spent much of their time dancing around the political decisions that created the subprime-mortgage-market collapse. This behavior should not come as much of a surprise. Both Mr. Greenspan and the liberal Democrats who control the committee have important reasons not to delve too deeply into the role of Congress in pushing Fannie Mae and Freddie Mac to the brink of collapse, a financial catastrophe that will cost taxpayers $200 billion....Whitewashing Fannie Mae, Freddie, Editors, The Washington Times, 10/24/2008

Easy money -- for all of the obfuscations of Alan Greenspan, a linguistic style well-known from any lifelong bureaucrat, those two words define the spirit that created the current crash, with its driving factors of defaulted subprime mortgages and all of the mortgage-based securities built on that cardboard foundation. Fannie Mae and Freddie Mac were encouraged by the Democrats to guarantee mortgages that would not otherwise have been given, but the flood of cheap money that made such faulty instruments possible was provided by decisions of the Federal Reserve when Greenspan was Chairman. However, even he made an effort to stop the political manipulation of mortgage risk.

During this period, Mr. Greenspan called for reforming the GSEs. In testimony before the Senate Banking Committee on Feb. 24, 2004, for example, he called on Congress to place limits on the size of Fannie and Freddie's portfolios in order to restrict their issuance of debt. But Congress failed to listen, and the Bush administration lacked the political muscle to pressure it to do so. Instead of reining in the GSEs, powerful members of Congress put pressure on Fannie and Freddie to massively expand investment in financially risky "affordable" housing projects from 2005 to 2007, ultimately triggering the GSEs' collapses. Irresponsible politicians — not "market failure" — bear primary blame for these financial disasters....(Whitewashing Fannie Mae...cont'd)

Don't expect to see a position paper on that from the DNC or from Obama's media campaign.


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