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Home Publications Blogs Beat the Press Can Greenspan Be Retroactively Impeached As Fed Chair?

Can Greenspan Be Retroactively Impeached As Fed Chair?

Monday, 21 October 2013 13:29

That's what readers of this AP interview with Greenspan must be asking. Greenspan was asked about the crisis caused by the collapse of the housing bubble (inaccurately referred to in the interview as the "financial crisis). He responded by saying:

"A: The problem is that we didn't know about it [the growth of the subprime market]. It was a big surprise to me how big the subprime market had gotten by 2005. I was told very little of the problems were under Fed supervision. But still, if we had seen something big, we would have made a big fuss about it. But we didn't. We were wrong. Could we have caught it? I don't know."

The correct response from the interviewer should have been an astonished, "you are claiming that you did not know of the enormous growth of the subprime market by 2005? It was widely talked about in the business press and documented in a number of different data series. How could the Fed chair possibly have missed the explosion of exotic mortgages?"

It is preposterous that Greenspan would make such a claim. Everyone who was paying any attention to the housing market was joking about the proliferation of "NINJA" loans, which meant no income, no jobs, no assets. The Fed chair really didn't have a clue of this?

His professed ignorance on this topic is astounding. If he really missed the flood of bad mortgages that was propelling the unprecedented rise in house prices then he was not doing his job. He should repay the taxpayers his salary for these years, he obviously did not work for it.

Comments (15)Add Comment
Yeah riiight....
written by rationalrevolution, October 21, 2013 1:55
Yeah right, he was totally unaware of it, but yet we discussed it with the guys that I hung out with at the bar. Admittedly we lived in Miami, a place where the bubble was the worst, but still...
written by Jay, October 21, 2013 2:33
Mr. Irrational exuberance says he didn't know there was a housing bubble. He must think people are incredibly dense. His own thesis talked about housing bubbles.
written by joe, October 21, 2013 8:07
Disgraceful liar.

Here's a paper from the St Louis Fed published March 2005 detailing the subprime boom.

The Delinquency of Subprime Mortgages - St Louis Fed March 2005

Subprime lending in the mortgage market has seen dramatic growth since the early 1990s. The share of total originations that is subprime has risen from 1.4 percent in 1994 to 18.7 percent in 2002. Lenders include both mono-line lenders (subprime only) and larger institutions that provide subprime loans as part of a continuum of alternatives. The securitized market for subprime loans has also been growing, with the securitization rate of subprime home mortgages rising from 31.6 percent in 1994 to 62.5 percent in 2002."
The Famed CEO Defense
written by Jesse, October 21, 2013 8:37
Made infamous by Jeff Skilling of Enron, the CEO defense is that ignorance of wrongdoing carries no penalty even if it is utterly implausible and a direct violation of the oath or duty which the person had for a particular situation.

Greenspan tells whoppers, to put it more plainly. And many economists who had agreed with him even to a late date are now backing away from him, not that he does not wield the power of the Fed, and since he is stepping on their Keynesian toes.

One should give credit to Hogan's heroes Sergeant Shultz.
written by John Wright, October 21, 2013 9:57
In America in the late sixties there was a comedy based in a American POW camp in Germany which had an inept German Sergeant Schultz character.

Per Wikipedia, "Schultz was aware the prisoners were carrying out mischief, but deliberately ignored it to maintain the status quo, often stating "I know nothing", "I hear nothing" or "I see nothing", sometimes all three at once."

In the interest of fairness, Enron's Skilling and Greenspan borrowed their defenses from this television show.

One hears this defense referred to as the "Sergeant Schultz defense".

It is very popular with CEO's who know everything when negotiating for compensation but nothing when confronted with legal issues.
Greenspan Excuses Based Legitimately on Lag in Death Rate Data
written by Last Mover, October 22, 2013 4:01

In testimony after the financial crash Greenspan said he "discovered" a critical flaw - that bankers did not have enough skin in the game. He blamed ignorance of the exploding sub-prime market on a "data lag".

Accordingly, the death rate during the build-up of the bubble should be revised downwards to account for all the dead people signed up to get a sub-prime loan by mortgage servicers willing to loan to anyone - who were not really dead.

Until this data lag is corrected, Greenspan will justifiably continue to claim the Fed cannot do anything anyway regarding the discovery of critical flaws like too many houses with no one living in them.
written by JDM, October 22, 2013 4:19
One thing that has become crystal clear over the past 15 years is that a great many of the people who make big money for filling high power positions either continually lie through their teeth, or have less idea of what is going on around them than some random person who reads a few blogs, or both.
written by skeptonomist, October 22, 2013 8:35
Bernanke showed the same blindness and expressed the same attitude - "it's not the Fed's job to control bubbles". It's past time for Dean and others to face up to the fact that what is demanded of the Fed is impossible - it can't be assigned the job of stimulating the economy and then expected to blow the whistle on its own policies. The attitude shown by Greenspan and Bernanke goes with the job, and there is no reason to expect that anybody who is likely to get such a job would act differently.
written by dick c, October 22, 2013 9:00
Impeach? To bad we can't prosecute for malpractice..
written by sherparick, October 22, 2013 9:59
You know, this is the problem when you go to conferences are invited as a guest on Squawk Box and treated with complete deference, you start to think everyone is stupid, or will pretend to be stupid for your benefit. Just on the first page of googling "Gramlich and Greenspan" you get this: http://money.cnn.com/2007/06/0.../index.htm

By the way, the same financial press is having a pity party for Jamie Dimon and J.P. Morgan Chase because they have agreed in a SETTLEMENT to pay $13 billion dollars. They are being picked on by "mean ol" Obama and Holder. Listen, Morgan Chase has the money to pay best litigation attorneys in the world millions of dollars to defend them. If the facts are so bad that a $13 billion dollar settlement sounds like a good deal, that means we are dealing with some real bad facts of civil fraud, misrepresentation, and malfeasance in regards the mortgages sold to Fannie, Freddie, third party investors, and customers of of these mortgages. Of course, according to Greenspan, the customer and investor have only themselves to blame for letting the banks defraud them.
written by PeonInChief, October 22, 2013 11:07
Being a one percenter means that you get to rewrite "history" that most people can remember because they had to live through it, and the press publishes your b******t without noting that it is b******t. I wish I could get away with stuff like that.
written by watermelonpunch, October 22, 2013 11:19
Yeah riiight....
written by rationalrevolution, October 21, 2013 1:55
Yeah right, he was totally unaware of it, but yet we discussed it with the guys that I hung out with at the bar. Admittedly we lived in Miami, a place where the bubble was the worst, but still...

At the time, I did think it was maybe confined mostly to bubblicious areas like SoCal, where I knew people (retirement age relatives) who were doing real estate and kept mentioning the bubble, and dodgy things going on with mortgage brokers, during the years of 2002-2005.
At the time though I'd heard it as "NINA", and heard more often about the evil of ARMs.

In retrospect though, having known an inordinate amount of young men going into the construction business in NE PA during those years, and also following the stories of a local notorious construction fraudster (who has since spent time in prison)... I knew something was hinky around here too, even though I had no personal connection to the real estate or construction industry.

By 2009 there were dozens of "new neighborhoods", built within the previous 5-10 years, in and around the Pocono Mountains, in various stages of early development with signs that construction had been abruptly halted mid-stride.
Some neighborhoods with very few houses being occupied, and there was one quasi-McMansion development near the Poconos that seriously reminded me of a large-house version of the scenes of Camden NJ I'd seen from the Path train out of Philly - all the associated earmarks of serious tragic poverty, low income living, lack of upkeep & resources, etc.

The bubble was nearly everywhere by 2007, and so was subprime lending.

No way could it have been invisible, certainly not to someone who was supposed to have his finger on the pulse of the economy & banking industry.

I would need to see a report from Alan Greenspan's doctor, documenting that he had signs of senility 15 years ago, in order to believe he really couldn't have know about the serious uptick of the subprime market.
What other explanation is there?
Did he spend those years in a hopeless Everquest addiction?

Or could he be just straight up telling lies?
we have found a flaw
written by Richard Genz, October 22, 2013 12:33
Brazen deception by the Maestro. Supine reporting by the AP.

From the NYT "Fed Shrugged as Subprime Crisis Spread" 12-18-07:

"Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.

But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman....

And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.

John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.

“He never gave us a good reason, but he didn’t want to do it,” Mr. Gnaizda said last week. “He just wasn’t interested.”" http://www.nytimes.com/2007/12...d=all&_r=0

written by nineteen50, October 22, 2013 6:45
How many remember this
"Greenspan Was Worried that the U.S. Would Pay Off It’s Debt, Causing the Fed to “Lose Control of Monetary Policy” … So He Suggested Tax Cuts for the Wealthy to INCREASE the Debt" and supported Bush tax cuts.
I remember Greenspan worried the US would pay off its debt
written by John Wright, October 22, 2013 9:39

And if I recall correctly, Bush's first Treasury Secretary (Paul O'Neill) related that he AND Greenspan wanted triggers put in the Bush tax cut legislation that would undo the cuts if budget deficits ensued.

Greenspan was silent on the triggers when he subsequently endorsed the tax cuts.

And per the late Pierre Rinfret, Greenspan's consulting firm had no clients at the time Greenspan was appointed to the Federal Reserve post.

This surfaced because Rinfret wanted to buy Greenspan's client list, but there was nothing to buy.

Alan Abelson of Barrons, like Rinfret, was skeptical of Greenspan's wisdom and actions.

While Greenspan may have entered his Federal Reserve post in poor financial condition, exiting when he did and grabbing an $8.5million book advance worked very well for him.

Financial bubble popping and taking on the financial industry would have not been good for Greenspan's finances.

Greenspan's situation reminds me of the late Clark Clifford who was quoted "I have a choice of either seeming stupid or venal." when details of his involvement in a banking scandal emerged.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.