Cross-posted at Tall Tales
Earlier today, in an appearance before the House Oversight Committee, Alan Greenspan made a stunning admission about the failure of the Republican deregulatory model.
From the New York Times:
Alan Greenspan, the former Federal Reserve chairman once considered the infallible maestro of the financial system, admitted on Thursday that he "made a mistake" in trusting that free markets could regulate themselves without government oversight....
Mr. Greenspan conceded a more serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy.
"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms"....
Mr. Waxman pressed the former Fed chair to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Mr. Waxman said.
"Absolutely, precisely," Mr. Greenspan replied.
I'm proud to say that my new book -- which I've written about extensively here, and which embodies the netroots tradition of confronting double-talking Republicans with their own words -- played a small role in today's hearing when the focus turned to the collapse of the housing market.
Here's the setup from today's AP report about the hearing
During questioning, Greenspan was challenged about various statements he had made during the five-year housing boom including forecasts that it was unlikely that there would be a nationwide collapse of home prices.
Rep. Dennis Kucinich led that charge, beginning:
As documented by Jim Oleske in his book, called Yeah Right, you, Mr. Greenspan, promoted adjustable rate mortgages that fueled the subprime market
Kucinich then systematically ticked through the many short-sighted and out-of-touch Greenspan quotes collected in Yeah, Right:
You said, in February 2004, "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage." ...
In June 2005, you stated: "Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications."
In September 2005, you stated, "the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices."
The next year, in May 2006, you said, "We’re not about to go into a situation where prices will go down" speaking about housing, there is "no evidence home prices are going to collapse."
By mid-2006, there was evidence that the housing market was beginning to have troubles, but you said in October 2006: the "worst may well be over, ... I suspect that we are coming to the end of this downtrend."
One month later, in November 2006, you said: "It looks as though the worst is behind us ... the global economy is in extraordinarily good shape .... Things don’t look bad."
(Video available at CSPAN, 1:36:05)
When pressed by Kucinich as to when he learned there was a housing bubble, Greenspan responded, "the housing bubble became clear to me sometime in early 2006." But Greenspan never explained how that realization in "early 2006" can be squared with his continued assurances in May, October and November 2006.
Nor did Greenspan explain how his statement about homeowners having a sizable equity cushion could be reconciled with the fact that home equity has fallen every single year of the Bush administration, reaching a 63-year low in 2008.
Given the understandable focus on Greenspan, less attention has been paid to former Treasury Secretary John Snow, who was also on today's witness panel. He too could have been asked some difficult questions about his failure to see this economic crisis coming.
Here is Snow in January 2006:
"[T]he American economy is firing on all cylinders .... I can tell you that as we begin 2006, we have every reason to be optimistic that this economy—the most flexible, resilient and robust in the world—will continue to grow and create good jobs."
And again in May 2006:
"I think that there is a lot of momentum for more good jobs and for rising wages ...."
Those rosy assessments -- made in support of the deregulatory, trickle-down Republican economy -- have now been revealed as tragically short-sighted.
To quote Barack Obama:
This financial crisis is a direct result of ... an economic philosophy that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else; a philosophy that views even the most common-sense regulations as unwise and unnecessary. And this crisis is the final verdict on this failed philosophy – a philosophy that we cannot afford to continue.
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Greenspan and Snow excerpts collected in
Yeah, Right: "This Economy Is Strong" and Other Tall Tales
(pages 9, 13, 21, 22, 26, 38 & 52)
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