Former Federal Reserve Chairman Alan Greenspan is defending his record before a panel investigating the roots of the financial crisis, saying his policy at the Fed of keeping interest rates low did not encourage risky lending.
In opening testimony before the Financial Crisis Inquiry Commission, Greenspan responded to critics who say the Fed failed to regulate risky lending to borrowers who could not afford the debt.
Those loans became the toxic assets that sparked the crisis. He said the Fed did not have the authority to regulate the nonbank lenders that issued most subprime mortgages. Panel chairman and former California state treasurer Phil Angelides said the Fed had issued guidance on predatory lending, but had not regulated it. He referred to internal Fed documents in which staff recommended “broad prohibitions on deceptive lending”. “Why in the face of all that did you not act to contain abusive, deceptive subprime lending?” Angelides asked Greenspan.
Greenspan pointed to a series of actions he said the Fed took, but Angelides countered that the Fed’s actions covered only 1 percent of the subprime lending market.
“You could’ve, you should’ve and you didn’t” regulate the lending activities, he said.
In prepared opening remarks, Greenspan blamed a litany of other parties and historical events for the meltdown but accepted no responsibility for himself or the Fed.