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Greenspan to Testify on Subprime Mess

The congressional panel investigating the financial crisis announced the witness list for next week’s much-anticipated three-day hearing focusing on who’s to blame for the subprime lending fiasco.

Former Federal Reserve Chairman Alan Greenspan (AP Photo/Harry Hamburg)

Former Federal Reserve Chairman Alan Greenspan highlights the list of witnesses, as expected. He’ll be the first witness to face the Financial Crisis Inquiry Commission on Wednesday — and the only witness from the Fed. He’s likely to be grilled over the central bank’s decision not to tighten up on the loose lending standards that many banks and mortgage companies were employing in the years leading up to the collapse. Defaults on poorly-documented subprime mortgages undermined the value of many mortgage-related securities, and helped trigger the broader financial crisis in 2008.

Greenspan already has cited the Fed’s decisions on lending standards as his biggest regret from the meltdown. He has said he thought the markets would be sufficiently vigilant to minimize the risk themselves. But the growing practice of securitizing mortgages into increasingly complex instruments apparently diluted accountability among lenders and investors, and encouraged poor risk management.

The hearing also will focus on two other institutions at the heart of the mortgage meltdown: Citigroup Inc., a big player in subprime securitization that eventually became one of the first to stumble in the subprime mess; and Fannie Mae, a government-sponsored mortgage company that was a leading investor in mortgage-related securities, and helped drive demand for subprime-related securities.

Citigroup witnesses will include Robert Rubin, the former Clinton-era Treasury secretary who became a top Citigroup executive; and Chuck Prince, the former chairman and CEO.

The 10-member commission is holding a series of public hearings focusing on the causes of the crisis. Future topics include complex financial derivative products, credit-rating agency failures, excess risk-taking and speculation, the government-sponsored enterprises such as Fannie Mae, the shadow banking system, subprime lending practices and securitization, and the concept of too-big-to-fail institutions.

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    • Let me get this straight for all of those years under democrats and Republicans when we were being told that Greenspan was a genius that was actually a big whoops?

      Wait a second. Does this mean that banks will recklessly pursue a profit while risking other people’s money?

      What about the call for less government intervention in our free-enterprise system?

      Are we talking about less intervention as in not regulating the day to day affairs of large businesses or are we talking about spending gobs of tax payer dollars to get businesses out of a jam they put themselves into?

      What about the idea that businesses must be free to pursue profit, because that is the incentive for them to do right by all?

      Sure these banks reckless behavior caused a global economic meltdown, but that’s no reason for the government to look over their shoulder constantly. The government should only intervene to bail the banks out by providing gobs of money with no strings attached and step away asking no questions.

      Greenspan was very good at his job and had a wonderful gift for seeing how things played out in the long run. He made a huge mistake by trusting entities that were untrustworthy and very very shortsighted. This does NOT make him innocent and he was foolish to trust the wolves to watch the sheep.

      Why would banks loan large sums of money to people with bad credit scores then turn around and sell those loans as AAA securities to be used retirement vehicles and for other purposes? At the first sign of economic strain those securities would eventually collapse and wouldn’t the banks foresee this?

      Now is the part where we learn the who/what/where/when/how and why of Greenspan’s folly.

      The same thing happened with the Savings & Loans association became deregulated.

    • At least he is a good Jew!

    • At least he is a good Jew!

    • Agree with most of the posters that Greenspan’s credibility is way down; he’s coasting on the fumes of his former reputation, but most of us now know that he was really out of it for most of his tenure.

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