March 18th, 2010
05:14 PM ET

Greenspan offers a mixed mea culpa

Alan Greenspan acknowledged Thursday that U.S. regulators had failed to grasp the magnitude of the financial crisis, but the former Federal Reserve chairman argued that low interest rates were not to blame.

In a paper he is due to deliver at the Brookings Institution on Friday, Greenspan, who was Fed chairman from 1987 to 2006, examines the factors that caused the global financial crisis and plunged the U.S. economy into one of the worst recessions on record.

Greenspan said the relatively minimal fallout from the bursting of the bubble led regulators to believe that future asset bubbles would pose a limited risk to the economy.

He also blamed financial firms for relying too heavily on ratings agencies and their own risk management offices during the boom years, when investment banks leveraged billions of dollars worth of assets, including mortgage backed securities, that later proved to be worthless.

"In the growing state of high euphoria, risk managers, the Federal Reserve, and other regulators failed to fully comprehend the underlying size, length, and impact of the negative tail of the distribution of risk outcomes," Greenspan wrote.

"For decades, with little to no data, most analysts, in my experience, had conjectured a far more limited tail risk," he continued. "This is arguably the major source of the critical risk management system failures."

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soundoff (4 Responses)
  1. JoshL

    Greenspan has much more to answer for than has been asked of him so far. He is a master politician, more than a great economics sage. This comment by him seems nothing more than calculated damage control for his reputation. The regulator Brooksley Born, head of the CFTC, tried her best to get Greenspan and his close friend Bob Rubin to address her concerns regarding the lack of regulations on private derivatives contracts several years ago. She was subject to a ferocious pushback. How is that not a major mistake by Al and Bob? How can they possibly say they failed to catch a major issue before it took down the economy?

    March 18, 2010 at 7:09 pm | Report abuse |
  2. Rob P.

    When you hear you are an economic God often enough, you may start to bellieve it, as Greenspan did.

    His action, or rather lack of action, as well as his apparent lack of knowledge or understanding of real world economics, should consign him to hell. Unfortunately, he will continue to enjoy the fruits his employment, even though it turns out he really, really sucked at it.

    The other Fed governors are equally responsible too though, for none raised a peep when the economic sage whispered.

    March 18, 2010 at 8:22 pm | Report abuse |
  3. joseph cecil smith

    Greenspan and Bernanke missed the housing bubble.. whatever excuse he conjures, add to it that he's slow, dimwitted, semi blind, out of touch, and had no place governing a huge, hot, smart, fast moving monetary system.

    the short sellers correctly identified almost every single asset bubble yet. Chanos did repeatedly.. this only proves our government is staffed with morons who do not respect higher wisdom or authority, because chanos and others were warning loudly, but the 'leaders' flew the plane into the side of the mountain anyway.. maybe it wasn't intentional on some larger plan, but it sure seems like a huge crime that stripped much from the lower middle class, and conveniently dropped ALL LENDING STANDARDS, just at the tail of the bubble, drawing in all the lower income folks to bet, and lose their savings, into the last of the housing bubble. someone engineered that, it's too conveniant that such easy money was given, .. that's called bait, and it's used to hook people in large scale fraud. the congress seems to have allowed this. i bet the congress will be cleaned out if the people see any option beyond the psycho spending democrats, and the republicans, who really just want to outlaw abortion and gays, even if they pretend to be conservatives to get elected... what a twin pair of evil parties.

    fiscally conservative, socially progressive, and even revolutionary..
    we must raise politics up from money addiction.. that's the issue, all our elected leaders have to buy SO MANY TV COMMERCIALS.. that is the major factor that demands so much money.. awful hated tv commercials. ideas need to determine policy, not bribes.
    peace and blessings to all.

    March 18, 2010 at 9:23 pm | Report abuse |
  4. joseph cecil smith

    also, the government sector is so bloated, fat retirements, huge paychecks, low low productivity.. archaic.. and how does this sector trim its own fat? folks like Ron Paul will just cut spending to the bone, and the blood will pour into the streets.. the poor vastly outnumber the rich and will riot when the bankers get their interest rates up to where they want to take them.. we can't just cut spending, we have to be extremely creative to solve these problems cheaply. i don't see 'conservatives' being that creative, and thus they will stop spending, but will cause deep social unrest.. peace and prosperity will be related to super strong energy solutions which lower the actual cost of energy, and profoundly increase the supply, worldwide. this can support life up to 20 billion people on earth, which is mostly uninhabited if you look from high in the atmosphere..
    peace to all

    March 18, 2010 at 9:29 pm | Report abuse |