Let`s hear what Alan Greenspan wanna say !!

"It would be more beneficial and intersting if Alan Greenspan gave some feedbacks, responding to the Congress, in order to cool down the result of subprime outburst in U.S. which now the whole world is paying the price."

Adams

Wall Street Journal News Review (Oct. 24, 2008)

Alan Greenspan, former Federal Reserve Chairman, a prominent 18-year central banker, had fallen from the day when he was hailed for his contribution to the U.S. economy, as well as global economy as a whole.

Before the subprime crisis happened, low inflation and steady economic growth were achieved even American economy have been so far hit by dot-com bubble burst (2000-01) and the 9/11 terrorist attack. Moreover, for his stewardship in helping pull the world through financial crises, including the Asian Financial Crisis, Time Magazine called him part of the "committee to save the world."

Greenspan, on Thursday Oct. 23, conceded under harsh questioning form law makers that he made mistakes during his long tenure as the Fed chief that may have worsened the current economy downturn. In a four-hour appearance before the House Oversight Committee, Greenspan encountered legislators who interrupted his answer and tried to make him to admit that, at least in some ways, the present crisis would probably have never happened without his monetary policy of keeping short-term low-interest rates of 1%.

The former Fed chairman declared his "shocked disbelief" that financial institutions had failed to protect themselves from risks tied to subprime-mortgage related securities. At the hearing, "You had the authority to prevent irresponsible lending practices that led to the subprime crisis. You were advised to do so by many others. And now our whole economy is paying its price," said Rep. Henry Waxman, chairman of the House Committee. Sometimes, legislators caustically read back Greenspan`s own words from many years ago as evidence to prove that his predictions and policies had been wrong.

To response to Rep. Henry Waxman and the Congress, Greenspan said that "I was often following the will of Congress and did what I was supposed to do, not what I would like to do." Indeed, 35 years ago, Greenspan said that he never anticipated home prices could fall so much, and did not forecast a significant decline because significant depreciation in home values had never happened so far.

His confidence in the resilience of home prices shared by many investors at the time, but ultimately became a critical forecasting error. The belief encouraged more mortgage underwriting because lenders assumed that borrowers could always refinance or sell their homes for a profit if they ran into trouble. But 2.5 years after Greenspan left office, Congress was drawing plans to remake global financial regulation with the kind of tight government hand that he long opposed.

Then, early 2006 the Fed and financial intermediaries raised interest rates to deal with the mortgage-loan bubble (2004-05) in America. Some economists argued that it was an additional ingredient that caused financial instability and led to the current subprime crisis. On the other hand, Greenspan has spent much of this year trying to show his decisions were far less significant than external forces in causing the crisis. He firmly argued that a global saving glut was responsible for low interest rates worldwide, not just in the U.S. that contribute to a housing boom.

Logically and interestingly, his answer was that "We were wrong quite a good deal of time. Forecasting never gets to the point where it is 100% accurate. If the best experts were not able to foresee the development, I think we have to ask ourselves, 'why is that?'" Greenspan added. "And the answer is that we are not smart enough as people. We just cannot see events that far in advance." He stressed.

The treatment was striking contrast with Greenspan`s appearance before Congress as the Federal Reserve Chairman on November 3, 2005. At that time, "You have guided monetary policy through stock-market crashes, wars, terrorist attacks, and natural disasters," Rep. Jim Saxton, Republican of New Jersey, told him. Then he added "You have made a great contribution to the prosperity of the U.S. and nation is in your debt."

(Source: Wall Street Journal, Oct. 24, Greenspan Admits Errors To Hostile House Panel by Kara Scannell and Sudeep Reedy)