الجمعة، أكتوبر 24، 2008

Congressional Confessions 3

Alice Rivlin
Former Vice Chair, Federal Reserve Board

As this housing bubble grew and took off, lenders were making a lot of loans that they shouldn't have made. And borrowers were borrowing when they shouldn't have made them.

Forecasting the crisis
JUDY WOODRUFF: To get some perspective on today's hearing and what was revealed, we get the views of two people who've watched the Fed closely over the years, one from the inside and one from the outside.

Alice Rivlin served as vice chair of the Federal Reserve in the late 1990s. Also a former director of the Office of Management and Budget under President Clinton, she's now a senior fellow at the Brookings Institution.

And John Cassidy, he's a staff writer at the New Yorker and contributing editor at Conde Nast Portfolio. He has covered Alan Greenspan for both magazines.

Thank you both for being with us.

Alice Rivlin, to you first. When Alan Greenspan says we were just not smart enough, no one was smart enough to be able to forecast what was going to happen, first of all, do you agree with him?

ALICE RIVLIN, Former Vice Chair, Federal Reserve Board: Not completely. I think what we failed to do was look at where the incentives in our system were going to get us into trouble.

Now, one was in subprime mortgages. We were not regulating the lenders that were putting out a lot of bad loans, in retrospect.

JUDY WOODRUFF: So you think that information wasn't available?

ALICE RIVLIN: Well, no, I think it was available. These institutions were not federally regulated banks, mostly. They were mortgage lenders who were regulated by the states, if at all.

But as this housing bubble grew and took off, lenders were making a lot of loans that they shouldn't have made. And borrowers were borrowing when they shouldn't have made them.

And then there was another complication, several more, but these loans were being packaged and sold to somebody else to be backing for mortgage-backed securities.

Now, in the old days, the lender really had to watch out that he wasn't making a bad loan because he might not get repaid. But in this new world, he didn't have to worry about that. He could sell this loan to somebody else and then take the money and make another loan. So we got the incentives wrong there.

JUDY WOODRUFF: So you're saying that the information was there and people did have -- should have known better, is basically what you're -- let me bring John Cassidy in.

How significant is it, this statement by Mr. Greenspan that people just didn't know enough to do anything about it?

JOHN CASSIDY, The New Yorker/Portfolio Magazine: Well, it was a remarkable appearance all told, if you think back to 10 years ago, even 5 years ago, how, you know, in what awe Greenspan was held. I covered a lot of hearings on the Hill, and he was treated with great deference, as your report said.

But actually I think he didn't really change his tune that much. During the speculative bubble of the '90s, he used to say, "This is too complicated. Nobody can really understand if it is a bubble."

Then we had a second bubble, the housing bubble, which was obviously linked to the subprime problem. And now he's saying, "Well, that was too complicated, too. Nobody could really understand that, either."

Now, if you think about that, what he's really saying is, you know, he's the top regulator in the country. He's the head of the central bank, but he can't really do anything about the major problems in the economy.

And I think, you know, that's just pushing it a bit.

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