Washington – Even the Maestro didn’t see it coming.
Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to recognize early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.
In an interview, Greenspan said he was aware of subprime lending practices, where homebuyers got low initial rates only to see them jacked up later, causing severe payment shock. But he said he didn’t initially realize the harm they could do.
“While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,” he said in a CBS “60 Minutes” interview to be broadcast Sunday.
“I really didn’t get it until very late in 2005 and 2006,” Green span said.
An excerpt of the interview was released Thursday.
As Fed chief, Greenspan’s handling of the economy earned him monikers, including the Maestro, the greatest central banker who ever lived and the second-most important person in Washington.
Yet some wonder whether the Greenspan Fed could have done more to prevent lax lending standards, bad loans and other problems that have since come to light in the higher-risk subprime-mortgage market.
Sen. Charles Schumer, D-N.Y., said: “Greenspan was one of the smartest regulators this country ever had. If he missed it, then it should be a warning to the current regulators about the depth of this crisis.”
Greenspan, who ran the central bank for 18 1/2 years – the second-longest term in history – left in 2006. His successor, Ben Bernanke, has had to deal with a credit and financial crisis stemming from the subprime-mortgage mess.
