Greenspan: I Didn't See Mortgage Meltdown Coming


Former Federal Reserve Chairman Alan Greenspan said he was late to see the storm gathering around U.S. mortgage lending practices and commended his successor Ben Bernanke's handling of the crisis, saying he would likely be responding in a similar fashion.

On his last day as chairman of the Board of Governors of the Federal Reserve System, Alan Greenspan smiles as he presides over his final Federal Open Market Committee meeting at the the Fed's headquarters in Washington, Tuesday, Jan. 31, 2006. He is speaking to Deborah J. Danker, at left, special assistant to the board, with Vice Chairman Roger W. Ferguson Jr., at right. Greenspan has held the post for more than 18 years and is widely viewed as the most successful chairman in the Fed's 92-year h
J. Scott Applewhite

"I think he is doing an excellent job," Greenspan said of Bernanke in a television interview scheduled to air Sunday.

Greenspan was asked if he would lower interest rates as dramatically and quickly now as he did just ahead of, during and in the wake of the 2001 recession, according to excerpts of the CBS "60 Minutes" interview released Thursday.

"I'm not sure that's true," he said. "We were dealing with an environment back then when inflation was easing. We could have acted without the fear of stoking inflationary

"You can't do that anymore. ... I'm not sure I would have done anything different (if chairman today)," he added.

Greenspan Defends Decision

Bernanke's Challenge

The comments from Greenspan, who was tested early in his tenure by the October 1987 stock market crash, come as Bernanke's skills are being challenged by rising defaults in the U.S. subprime mortgage market which have triggered a global credit squeeze.

Bernanke's Fed has come under fire from some quarters for not acknowledging the impact of the crisis stemming from the subprime market, which caters to risky borrowers, quickly
enough or responding aggressively enough to give the economy a boost. Some analysts have speculated that Greenspan would have acted more swiftly.

Bernanke and his colleagues meet Tuesday. They are widely expected to lower benchmark overnight interest rates, which the Fed has held at 5.25 percent since June 2006, by at
least a quarter-percentage point.

The Greenspan interview is the first in a series of public appearances the former Fed chairman is making to publicize his memoir, "The Age of Turbulence," which is being released Monday. Greenspan stepped down from the Fed in January 2006.

Greenspan said that as Fed chief he knew about questionable lending practices that were leaving subprime borrowers with adjustable rate loans vulnerable to harm from rising interest
rates, but did not recognize those loans would trigger broader problems until fairly recently, CBS said.

"I Didn't Get It"

"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," Greenspan said. "I really didn't get it until very late
in 2005 and 2006."

Greenspan, 81, has received credit for leading the economy to its longest-ever expansion in the 1990s and many economists have praised his handling of a sequence of crises.

Indeed, some have hailed him as the greatest central banker in U.S. history.

However, others criticize Greenspan for sowing the seeds of successive asset bubbles, first in U.S. stock markets and later in housing. He has also come under fire for suggesting during
his Fed tenure that adjustable rate mortgages could be a cost-saving financing option for many borrowers, just shortly before the Fed embarked on a long push to move rates higher.