The FCIC report assigned much of the blame for the financial crisis to Alan Greenspan, who appeared on CNBC to trash financial reform. For the better part of an hour, four CNBC reporters avoided any reference to the FCIC or any suggestion that Greenspan's track record was less than exemplary.
It’s very hard to observe a conspiracy of silence, especially one among journalists, which is why the March 4 edition of CNBC’s Squawkbox is such a find. Carl Quintanilla, Joe Kernen, Steve Liesman, Rebecca Quick and their producers all worked to promote a collective amnesia about the financial crisis.
Five weeks earlier, the Financial Crisis inquiry Commission released its report, which assigned a large part of the blame to Alan Greenspan. The former Fed Chairman did not simply pursue misguided policies; he was guilty of a gross dereliction of duty. If you want a sense of déjà vu all over again, check out scathing rebuke delivered by the Republican Chairman of the House Banking and Financial Services Committee on May 24, 2000. Rep. James Leach carefully and methodically recounted the legislative history of the Home Ownership and Equity Protection Act:
Congress six years ago passed a law which was very strong in its sense of purpose in outlawing predatory lending in effect. And then, because Congress felt that the subtleties of this were beyond the Congress, we gave two federal regulators, most specifically the Federal Reserve Board of the United States, the authority to make definitions and to move in this direction…Just to go back to this law, what we said and we gave particularly to the Fed:
"The Board by regulation or order shall prohibit acts or practices in connection with mortgage loans that the Board finds to be unfair, deceptive or designed to evade the provisions of this law." I'm paraphrasing partially at the end. "And in connection with refinance of a mortgage loan that the Board finds to be associated with abusive lending practices or that are otherwise not in the interest of the borrower."
So the question becomes if there is a problem out there: If Congress has given very strong authority to regulators and the Federal Reserve, are regulators and the Federal Reserve AWOL?
The rhetorical question answered itself. By statute, the Fed was required to hold periodic hearings on the effectiveness of HOEPA in curbing abusive lending. The Fed hearings had last conducted almost three years earlier, prior to the first collapse of the subprime mortgage market and foreclosure crisis of the late 1990s. In terms of taking substantive action to police against widespread mortgage fraud, the Fed had done nothing, and would continue to do nothing under Greenspan’s watch, which ended in 2006.
But the FCIC report, and the financial crisis in general, were verboten topics on the 7:00 am program, during which Quintanilla, Kernen, Liesman, and Quick all fawned over their special guest, Alan Greenspan. How could you have Greenspan on your program and not ask for his response to the FCIC report?
It’s not as if Greenspan came to speak about an unrelated topic. He came with a specific agenda: To trash financial reform. He used the standard rightwing rhetoric about “government activism” and regulation creating “uncertainty” in the marketplace, invoking his most recent claptrap analysis, which ignores the issue of working out trillions of dollars of underwater mortgages originated during his tenure. For Quintanilla, Kernen, Liesman, and Quick, the mere suggestion that Greenspan’s credibility or track record might have any blemishes was strictly off limits. Remember, this was not a one-on-one interview, or a five-minute segment. The transcript of Greenspan’s appearance is 6200 words long. Would any reporter forget to ask John Edwards about his adulterous affair? Or forget to ask Dick Fuld about his role in Lehman’s collapse?
The passage below exemplifies the collective ass kissing we saw that morning. Do you think CNBC has an agenda?
KERNEN: How about this? Last time we talked here and I was fascinated by your rigorous analysis of what was causing the recovery to be subpar. And some of it you attributed to the increase in government activism following the collapse of Lehman Brothers and all the consequences.
…
GREENSPAN: There’s not -- there’s a lot of talk but there hasn’t been a great deal of Cash for Clunkers or housing credits or --
KERNEN: But it’s coming, the regulatory.
GREENSPAN: Well, where the big issue essentially is in the implementation of Dodd-Frank.
KERNEN: Right.
GREENSPAN: Because the one thing I’m almost certain of is that -- and we’re already beginning to see early signs of this -- is that the Dodd- Frank bill was very specific in telling regulators what it is they wanted to happen in the marketplaces. And they said, let’s do this. You regulators figure out how to do it.
Now I look at the whole series of mandates in Dodd-Frank, and I think some of them are internally contradictory. And we’re going to find out whether that is indeed the case when the regulators start to implement.
QUINTANILLA: For example?
GREENSPAN: Well, for example, remember fairly soon after the bill was signed -- there are very few hardwired things in the bill. Almost everything is essentially put to the regulators to --
KERNEN: 2500 pages. I mean you want some detail.
GREENSPAN: But look -- but look what’s happened. Right at the beginning, we find that because the credit rating agencies, which admittedly did not do a sterling job nor did most of the regulators. And as a consequence, in the Dodd-Frank bill is the issue of potential liability on the credit rating -- on their rating.
So what happens? Ford Motor decides it wants to do an asset-backed security in order to finance motor vehicle sales. And they could not get a credit rating agency to certify it, which is required before you go into marketing. And --
QUINTANILLA: So --
GREENSPAN: So what happened, basically, is that there’s an exchange of letters that goes on between the Ford Credit and the SEC, and the SEC decided to suspend that. Now that’s the tip of the iceberg.
We also just recently saw another one begin to emerge now with Visa and Mastercard and the fees that they charge --
QUINTANILLA: The Durbin Amendment.
GREENSPAN: Yes, exactly. And this is only the beginning. Remember, we haven’t even seen any of the whole bulge of regulations. The Fed has got something close to 200 regulatory rulings.
QUINTANILLA: We had Sam Zell on the program yesterday, who called that bill and health care monstrosities. Would you go that far?
GREENSPAN: I don’t use such language.
(LAUGHTER)
GREENSPAN: It’s going to be very -- what we’re going to find is that the unexpected consequences of much of the new regulation that’s going to come as a result of Dodd-Frank is going to have to be reversed. And that is going to create very high degrees of uncertainty.