STEVE INSKEEP, Host:
The man who always seemed to be right when he was overseeing our economy now says he might have been wrong. Alan Greenspan, former chairman of the Federal Reserve, testified before lawmakers about the causes of the financial crisis. And he says, markets have been hit by a crisis worse than anything he could have imagined. He still doesn't fully understand why. NPR's Brian Naylor reports.
BRIAN NAYLOR: The man once known as the maestro for his direction of the nation's economy as Fed chairman sat for four long hours yesterday, watching lawmakers who once cheered his performances turn into harsh critics. Testifying before the House Oversight Committee, Greenspan didn't down play the severity of the crisis in the nation's markets.
M: We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures.
NAYLOR: Under questioning from Democrats on the panel, Greenspan conceded he might have been, as he put it, partially wrong in not moving to regulate trading of some derivatives that are among the root causes of the credit crisis. He also admitted his free market ideology may be flawed. This exchange with committee chairman, Democrat Henry Waxman of California, verged on the metaphysical.
NAYLOR: You found a flaw in the reality...
M: Flaw in the model that I perceived is a critical functioning structure that defines how the world works, so to speak.
NAYLOR: In other words, you found that your view of the world, your ideology was not right. It was not working.
M: How it - precisely. That's precisely the reason I was shocked, because I've been going for 40 years or more with very considerable evidence that it was working exceptionally well.
NAYLOR: As for criticism that Greenspan let interest rates remain too low for too long, helping fuel a housing bubble, Greenspan said it was investors' failure to properly factor in the risk that housing prices might fall that led to the credit freeze. Greenspan testified along with former Treasury Secretary John Snow and SEC chairman Christopher Cox. Democrat John Yarmuth of Kentucky said the three reminded him of an ill fated baseball player.
NAYLOR: I feel like I'm looking out there at three Bill Buckners, the first baseman for the Red Sox who let the ball go through his legs and cost his team the championship. All of you let the ball go through your legs, and you didn't want to let the ball go through your legs. You didn't try to let the ball go through your legs but it got through.
NAYLOR: Republican William Sali wanted to know the consequences of the meltdown.
NAYLOR: What do you say to the people in Idaho who lost their investment or the people that have caused this, is somebody going to go to jail?
NAYLOR: SEC chairman, Cox said there was no question that, as he put it, somewhere in this terrible mess many laws were broken. Cox said the SEC has 50 investigations under way into subprime lending, but Cox said there were other things equally as important as bringing charges.
M: Cleaning up the mess through law enforcement after the fact, while important, is not ideal. And the best thing that we can do, of course, as many of you are focused on, this hearing is focused on this, is to infer lessons from what happened and prevent anything like this - this astonishing harm from happening now.
U: The chairman...
NAYLOR: Cox suggested Congress call for a select committee to address the financial crisis. Greenspan said more regulation is required, though he continues to believe that as he put it, whatever changes are enacted will pale in comparison to changes the markets themselves have already made. Brian Naylor, NPR news, the Capitol.
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