WASHINGTON — Former Federal Reserve Chairman Alan Greenspan defended his legacy Wednesday, telling a special panel that's looking into the origins of the financial crisis that insufficient bank capital and poor business decisions brought the nation to the brink of ruin, and it wasn't his fault.
Greenspan's appearance before the congressionally created Financial Crisis Inquiry Commission was much anticipated and didn't disappoint. It included revelations that the Fed's own internal reviews had found insufficient policing of Citigroup, which taxpayers later rescued. A regulator whom Greenspan had silenced also grilled him mercilessly.
"The Fed utterly failed to prevent the financial crisis," Brooksley Born told Greenspan, after reeling off a litany of what she called failures by the central bank that helped bring about what Greenspan himself now labels the worst financial crisis ever.
Born was the chairman of the Commodity Futures Trading Commission in the late 1990s, and her unheeded warnings to Greenspan and other top Clinton administration officials came back to haunt the nation.
Greenspan said the financial crisis occurred because regulators were unaware at the time that capital requirements — how much banks have to sock away to offset potential losses — were insufficient. Even this begrudging mea culpa from Greenspan, however, had a caveat. Regulators "were undercapitalizing the banking system for 40 or 50 years," he said, suggesting that the problem predated his 18-year tenure.
The other major cause, he said, was a breakdown at the originating point of mortgage finance, where lenders failed to know their clients, the borrowers, sufficiently.