Greenspan Defends Low Interest Rates

(CBS)  Alan Greenspan may go down as one of the best chairmen of the Federal Reserve in American history. His 18-year tenure was marked by unprecedented economic growth, budget surpluses and a booming stock market. And he was praised universally for shepherding the economy through the shock of 9/11.

Now he has written his memoir, "The Age of Turbulence," which comes out just as he's coming under fire -- something he's not used to -- for today's housing and lending crises. His critics say he established a pattern of bailing out Wall Street investors.

Greenspan sat down with correspondent Lesley Stahl for his first major interview, defending himself against the criticism that he should've done something to stop the shady practices in subprime lending. In a rare admission, he told 60 Minutes he missed its significance.

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Asked why he didn't speak out, if he knew these practices were going on or even suspected that there was something illegal or shady, Greenspan admits, "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. I didn't really get it until very late in 2005 and 2006."

But others at the Fed did get it -- that banks and mortgage companies had already signed up millions of home buyers and speculators, many with poor credit, for so-called subprime mortgages with complicated interest rate adjustments that have led to record numbers of defaults. Some of the practices were fraudulent.

One of his former Fed governors, Ed Gramlich, said that he proposed that the Fed examine these lending practices and look into them to see if something could be done. Greenspan rejected that idea.

Why did he reject it?

"I thought that…we would not be capable of doing what he was suggesting," Greenspan says.

"But if sitting on them, taking some regula-what…" Stahl asks.

"Well, I think not," Greenspan replies.

"Even looking into it?" Stahl asks.

"It's nothing to look in to particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," Greenspan says.

He insists there's nothing he could've done to prevent today's plummeting home prices and the fact that a million families have lost their homes, and many more could. But some economists now say Greenspan actually created the housing bubble and the credit crunch by keeping interest rates too low for too long.

"Just remember we raised interest rates at every meeting from June of 2004 till I got out of office," he says.

"You raised rates in 2004. But only after you held interest rates at historically low level for three years, while the bubble, the housing bubble was forming," Stahl points out. "And that you had 13 rate cuts in that period of time."

"It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," Greenspan explains.

But some of the Fed governors who worked with Greenspan at the time are now saying that they think interest rates were too low for too long.

"I think they were mistaken," Greenspan says.

What this shows is how certain he is about his views, and how firmly he guided the Fed when he was Chairman and dealt with shocks to the financial markets by quickly lowering interest rates. Now in the current turmoil investors are calling on his successor Ben Bernanke, "to do what Greenspan would've done."

"The sense is you would have acted sooner. You would have thrown more cash and liquidity in the system. That you would have acted faster and more dramatically," Stahl remarks.

"I'm not sure that's true and let me tell you why," Greenspan says. "We were dealing in an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that any more. And therefore it's a different world. I'm not certain I would have done anything different were I there."

Asked if he doesn't think he would have acted faster, Greenspan tells Stahl, "I doubt it."

"You don't see any light between you and what Mr. Bernanke's doing?" Stahl asks.

"I think he's doing an excellent job," Greenspan replies.

"The CEOs of Ford and Chrysler are begging the Fed to lower rates. I mean, on their hands and knees," Stahl remarks.

"I would suggest they focus on selling, creating better cars for their customers," Greenspan says.

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[secundus2]

I''m tempted to say that the current Greenspin is at odds with what Greenspun in the past.

[jampact]

Leslie Stahl takes one%u2019s breath away--because she interrupts w/ pointed,long-winded questions!
Interviewers who don''t pace themselves to a person%u2019s cadence, should be dismissed from interview. It EXACTLY like taking something out of a person%u2019s hand. Just as rude-plainly:difficult to listen to-this is NOT skillful interviewing. Cheap,demeaning, unsophisticated. I''ve had it w/ TV interviewers !I''ve have had it w/interviewers who call female congress members by her FIRST name, but then, reverently, refer to Mr. Senator, or CongressMAN Smith, while calling a female office holder the equivalent of %u201Chon%u201D. I have had it w/interviewers who bully a guest,trying to get a sound bite out of a trip of the lip--or worse. Did Bernard Shaw help Michael Dukakis lose the election by asking what he would do if his wife were raped? Interviewers need as much or more coaching than the people running for office.Obviously, Leslie Stahl has relied on her personal friendship and professional clubbiness to land this interview. Why wouldn%u2019t Andrea Mitchell give a friend the important "first week of the new book%u2019s plum interview". Ms Stahl took her familiarity too far by rudely interrupting a senior fellow who deserves our respect. No one could deny that he was masterful even if you didn''t like the tune--it was masterfully played.Go back to class Ms Stahl-you missed the basics. CBS should be embarassed by this interview--poorly done/poorly edited.

[sharncedar]

It will be worth Associating with Alan Greenspan because his name represents not only financial wisdom but an expansion toward environmental integrity.

Posted by tomtomasters at 10:57 AM : Sep 18, 2007

Tell that to me after the excessive liquidity has been wrung out of the system through massive asset price drops or massive inflation. I have a strong feeling that "tomtomasters " will suddenly pretend he was against Grubspawn in that day. Just as Grasscrud pretends now he was against big federal deficits, when he was the authority who assured Congress that the Bush tax cuts were prudent, that the federal deficit was in fact small and manageable.

Isn''t it funny how the truly evil, men like Greasepan, are able to cast a spell of almost hypnosis over the stupid? The stupid follow evil men like losers follow a stripper. "But look, bubba, he got all that maney, he must be worthy of our worship". I can''t even imagine the kind of stupidity it would take to admire Grabscam.

[sharncedar]

I only wish that what Alan Greenspan and I had in common were financial genius.

Posted by cookie-tg at 07:42 PM : Sep 17, 2007

Did someone shake the tress and the monkeys fell out? Whaaa? Alan Greedspud''s genius was *political* not financial. His special knack was to come out with authoritative sounding cryptic pronoucements that by no coincidence supported with presumed "economic" statements the current desired policy of whoever was in power, whether Clinton or Bush, whether Democrat or Republican. The man was the eptiome of the evil slimeball servant of the wealthy and powerful, like the slimeball counselor that tells the king whatever he wants to hear, or the evil prophets in the old testament that sang praises of the corrupt leaders.

Yes if you had the evil genius of Greedscum you would indeed likely be rich, and everyone around you left in ruins. Hardly something to aspire to.

[tomtomasters]

Republicanism is a party for the minority who are rich supplanting the backbone of America who is really the middleclass. They are never concerned about the country or people, only themselves and how much more control they can have.But the Democrats who managed to wipe out debt and gain surpluses never seen before; is a living testimony to the fact that working middle class are the folks who are responsible, can manage, have creditability, and are competent in concern to national financial systems. They go the extra mile to prevent the calamity of war. In hindsight it is an admirable characteristic.
I think Greenspan doesn''t need the Bernake job to shift markets. His word is gold and wisdom when the time comes for him to compare the Clinton vs. Bush legacies. Anything that indicates helping the middleclass in the markets are winners and movers becoming the driving forces out of the Bush or Republican conundrum.Huge markets are developing for secure renewable energy resources, especially environmentally conscious groups. Oil is becoming more of a protected resource due to declining supplies, and Air Pollutional Global Warming Factors. Iraq oil will become conservative reserves, in an attempt to provide long term social stability. They have no other resources, except sand.It will be worth Associating with Alan Greenspan because his name represents not only financial wisdom but an expansion toward environmental integrity.

[tomtomasters]

One could argue the stolen election was the cause to 911, because the dire poor in middle class societies outside of the US would suffer more under a Bush administration causing the disenfranchisement, but the story is not so clear really, when evidence shows clearly 911 was more than hijackers attacking the USA.
Specifically it was a plan to control Oil resources in a region that is quite volatile because there is no nuclear balance in the Middle East. Israel is the only country to have nuclear weapons and this is the threat to Arabs who have none, and can not have control over their own resources. Yes Alan Greenspan should be ashamed of himself; but in reality the turn of events do prove and show the American people the contrasting realities. In fact Greenspan will come out of this when he admits this, and influences people toward the Democratic principles that led and kept the country out of debt and out of war, which has been their trademark ever since their success in ending the Vietnam War.Even though a Republican ended the war in Vietnam his resignation proved the hard realities and forces vying on Nixon to uphold the MIC convictions, or support the greater ideology, The Parvenu Paroxysm Ambit.

[tomtomasters]

Greenspan is the kingpin purveyor of federalism that worked for the Clinton administration in being the voice of a factual testimony to its accumulating assets that brought the country out of years of accumulated deficits; gaining surpluses never seen before since after WWII. That is until the change in guard to the Bush administration that totally reversed the good times toward the bad with the highest in accumulated debt in US history.
One could argue that 911 and the war in Iraq were beyond the control of economic forecasters, but anyone with a gene of common sense is keen to point out that Personalities do make a difference when it comes to leadership and the direction of a country. Could we say President Bush was just unlucky? The truth of the matter is no. His father was involved in the first military action in Kuwait, with George Jr. having ties to the binLadin family, making them intimate players on the scene in concern to national security if Bush was elected. We know binLadin was instrumental in military campaigns in Afghanistan, making the relationship to the Bush United States a duopoly to the Military Industrial Complex. Once you start recognizing the over-bearance of MIC in any administration it spells doomsday market pressures.

[cookie-tg]

When we heard in the interview that Alan Greenspan as a boy memorized train timetables, morse code, and baseball statistics, my wife and I in unison exclaimed, "Asperger''s Syndrome!" These are classic symptoms.

I only wish that what Alan Greenspan and I had in common were financial genius.

[realpatriot1]

jowand,

How do you define inflation, oh wise one?

The Asian monetary crisis was caused by what Greenspan would call irrational exuberance among both lenders and investors. The Fed can''t control individual lending and investment decisions, that''s why we have an SEC. They certainly can''t control individual investors in foreign countries or the economic policy decisions of foreign governments.

They do have to respond to the effects of those decisions and Greenspan flooded the world financial markets with liquidity and cajoled major investors to hold their Asian shares before the Asian crisis spread worldwide.

The man made his share of mistakes but he also saved us from a global depression.

[rocket7771]

I can''t believe this was a 60 minutes interview. Where were the tough questions. This man headed up the largest counterfeiting ring in the world.

Why didn''t you ask where the money comes from when they add liquidity? They steal it from our savings. It''s called inflation. They are not the protectors of inflation, they are the single only cause.

And to show him signing autographs on counterfeit 1 dollar bills, like he was a rock star, how disgusting.