It's too late to save millions of homeowners that duped lenders or those that were duped by lenders but Greenspan finally admits that he was ignorant of the extent of the subprime mortgage problem. It's about time!
Greenspan: I didn't grasp subprime threat
Former Federal Reserve Chairman says he didn't see early on the damage that lending to those with questionable credit could do to the economy.
WASHINGTON (AP) -- Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.
In an upcoming interview, Greenspan said he was aware of "subprime" lending practices where home buyers got very low initial rates only to see them later jacked up, causing severe payment shock. But he said he didn't initially realize the harm they could do.
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"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 a CBS "60 Minutes" interview to be broadcast Sunday. "I really didn't get it until very late in 2005 and 2006," Greenspan said.
An excerpt of the interview was released Thursday.
A meltdown in the subprime mortgage market has rocked Wall Street. Foreclosures and late payments have soared and lenders have gone out of business. Nervous financial institutions tightened credit standards, making it harder for even more creditworthy borrowers to get financing. This has increased chances the economy might slide into a recession this year.
Greenspan, who ran the central bank for more than 18 years - the second-longest serving chairman 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.
When he was at the helm, Greenspan maintained there was little the Fed - which also oversees the safety and soundness of banks - could do about the subprime situation. One of the Fed's governors, however, had raised a red flag about questionable lending practices.
"Well, it was nothing to look into 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 said in the interview.
Some blamed Greenspan's interest rate policies for feeding the housing frenzy. Sales had hit record highs and house prices galloped from 2001 to 2005. Then the market fell into a deep slump.
