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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Greenspan's Revelation: Subprime Mortgages Are to Blame

In his opening remarks this morning before the House Oversight and Government Reform Committee, Alan Greenspan said he raised concerns back in 2005 that there would be dire consequences to the bloated housing market.

The current crisis, however, is much worse than he imagined.

"It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount," he said. "Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment. Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity."

U.S. home prices must stabilize, he said, in order for recovery to begin. But that is still "many months in the future."

"Between then and now, however, to avoid severe retrenchment, banks and other financial intermediaries will need the support that only the substitution of sovereign credit for private credit can bestow," he continued. "The $700 billion Troubled Assets Relief Program is adequate to serve that need. Indeed the impact is already being felt."

He characterized his reaction to the current situation as "shocked disbelief."

As if he was saying something brand new, he said the subprime mortgage boom was the "undeniably the original source of the crisis."

Perhaps lawmakers will press him to reveal something they didn't already know.

-- Kim Hart

By Kim Hart  |  October 23, 2008; 10:17 AM ET
Categories:  The Ticker  
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I wish Greenspan would just shut up.

Posted by: Michael | October 23, 2008 11:02 AM | Report abuse

Just a little too little.
A little too late!

This debacle started on his watch. All he did at the time was gobbletty talk. Another expert.. the biggest in the money business at the federal reserve...not taking responsibility.

"shocked disbelief"??? Alan, asleep at the switch.

Posted by: barbara | October 23, 2008 11:02 AM | Report abuse

I wish Greenspan would just shut up.

Posted by: Michael | October 23, 2008 11:05 AM | Report abuse

So the man who was asleep at the switch is now blaming the train for taking the wrong turn. Alan Greenspan was possibly the one person who could have nipped the subprime mortgage debacle in the bud -- but he was too cowardly to DO HIS JOB. Or maybe he was too busy selling the Bush tax cuts to Congress. Remember his argument about how our financial system would go under if we paid off the national debt? What a joke.

Why anyone pays attention to a word this man says is beyond me...

Posted by: Steve | October 23, 2008 11:11 AM | Report abuse

At one time, people who failed their nation would fall on their sword in order to show their shame for failing their countrymen and so that their families could hold up their heads. Now, they just save themselves and their own personal fortunes, say that they warned everyone this would happen, when they did not, or say, ala Hillary Clinton "If I knew then what I know now", and/or blame someone else. I truly despise Greenspan, and Secy Paulson ( who as CEO of Goldman Sachs led the charge to deregulate brokerage debt asset capitalization requirements) and SEC heads more than I even can find words to express. They held the financial security in their hands, and they just played us like a throw of the dice.

Posted by: Madeleine | October 23, 2008 11:19 AM | Report abuse

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