“I see no choice but to require that all securitizers retain a meaningful part of the securities they issue,” the former chairman of the Federal Reserve said last week before the Committee of Government Oversight and Reform.
As the New York Times states in an article entitled “Greenspan Concedes Error on Regulation,” this new regulation would require “companies selling mortgage-backed securities to hold a significant number themselves.”
The article also notes that “Greenspan admitted he had:
• Put too much faith in the self-correcting power of free markets.
• Failed to anticipate the self-destructive power of wanton mortgage lending.
“Greenspan’s critics say he:
• Encouraged the bubble in housing prices by keeping interest rates too low for too long.
• Failed to rein in the explosive growth of risky and often fraudulent mortgage lending.
“‘You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,’ said Representative Henry A. Waxman of California, chairman of the committee.
“‘Do you feel your ideology pushed you to make decisions you wish you had not made?’”
Greenspan: “Yes, I’ve found a flaw.”
Greenspan “refused to accept blame for the crisis but acknowledged his belief in deregulation had been shaken.”
Greenspan Agrees with Democrats: Wall Street to Blame
The article also notes that “Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies placed in a government conservatorship last month.”
Republicans, including Senator John McCain, have argued that Democratic lawmakers such as Senator Barack Obama have “blocked measures to reform” Fannie Mae and Freddie Mac.
“But,” the Times continues, “Greenspan placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities.
“‘Global demand for the securities was so high,’ he said, ‘that Wall Street companies pressured lenders to lower their standards.’
“‘The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations…would have been far smaller and defaults…far lower,’ [Greenspan] said.”
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