Former Regulator Rips Greenspan for ‘Utter Failure’
Washington ยป 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.
A former regulator who had been previously silenced by Alan Greenspan got HER chance to speak at the Financial Crisis Inquiry Commission hearing and she didn’t mince any words. Good for her. It may take a woman to break up the ‘good ol’ boys network’ that continually lines their own pockets at the expense of the hard working American people who abide by the rules and get sheared.
“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.
On Wednesday, she tried in vain to get Greenspan to acknowledge deregulating the markets in 2000 allowed for an explosion of complex insurance-like products called credit-default swaps, which helped spark the collapse and rescue of insurer American International Group.
Greenspan said those products weren’t an issue at the time of deregulation, but Born reminded him they became one of the principal causes of the financial meltdown in September 2008.
“Are you aware that the collapse of AIG was caused by its commitments under credit-default swaps that it had issued? The taxpayer has had to bail out AIG because of its exposure to credit-default swaps to the tune of more than $180 billion,” she told Greenspan.
At the end of the bitter exchange, Greenspan told Born, “I really fundamentally disagree with your point of view.”
Also at the hearing, a former mortgage executive from Citigroup Inc. accused bank executives of violating their own risk management policies and ignoring his warnings about the coming financial crisis.
Richard Bowen said he raised concerns about mortgage risk starting in 2006. He said he sent an e-mail about it to former Chairman Robert Rubin and others in November 2007.
Bowen sent weekly messages to managers raising concerns about his group’s risk management. But he wrote to Rubin and other executives in 2007, “These breakdowns have not been communicated to or recognized by” Citi’s top audit or finance executives.
Bowen said at the hearing he doesn’t know whether any executives acted on his warnings about the bank’s purchase of suspect mortgages.
Citigroup disputed his account. Spokeswoman Molly Meiners said in a statement that the issues Bowen raised were “promptly and carefully reviewed when he raised them and corrective actions were taken.”