Scott Lanman and Steve Matthews
October 23, 2008
Former Federal Reserve Chairman Alan Greenspan said a “once-in-a-century credit tsunami” has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.
- A d v e r t i s e m e n t
“Yes, I found a flaw,” Greenspan said in response to a grilling from the House Committee on Oversight and Government Reform. “That is precisely the reason I was shocked because I’d been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
Greenspan said he was “partially” wrong in opposing regulation of derivatives and acknowledged that financial institutions didn’t protect shareholders and investments as well as he expected. Forecasting is an inexact science, he said.
“If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,” Greenspan said. “Forecasting never gets to the point where it is 100 percent accurate.”
In May 2005 speech, Greenspan said that “private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.”
Committee Chairman Henry Waxman, a California Democrat, said Greenspan had “the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis.”
“You were advised to do so by many others,” he told Greenspan. “And now our whole economy is paying the price.”