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Alan Greenspan claims his insistence on lower interest rates had nothing to do with the financial crisis, but Roosevelt Institute Senior Fellow Jeff Madrick doesn’t buy it.

by Justin Lutz
Alan Greenspan has defended himself before the Financial Crisis Inquiry Commission today. The Commission is meant to investigate the root causes of the financial crisis, and Greenspan’s work at the Fed–particularly when it comes to perpetuating low interest rates–is at the heart of the controversy. Greenspan has, of course, admitted no personal fault in creating the financial crisis, choosing instead to cite the fall of communism and excessive saving in developing countries as catalysts.

This is no surprise. Just yesterday, Roosevelt Institute Senior Fellow Jeff Madrick penned a piece here predicting that “Greenspan will fall back on his ideology, a simplistic view of economic competition that is not based on the real world.”

Madrick was exactly right. What is even worse than Greenspan evading personal blame for contributing to the financial crisis is his insistence that regulation (or the lack thereof) is not the cause or the solution–instead, regulators are completely helpless in their roles as financial watchdogs. Finance, he claims, is simply too complex for regulators to keep up:

“We [government] are reaching far beyond our capacities,” Greenspan said. ” It’s not a simple issue of ‘Let’s regulate better.’ It’s a different world.”

Madrick knew that this was coming, and predicted that Greenspan & Co. would portray government regulation as a useless infringement on the free market and true competition: “They will of course scold the commission if they fail to understand that market competition is the best regulator, and warn them not to damage a system that has been at the heart of prosperity in America for so long.”

Even at his toughest Phil Angelides — former California State Treasurer and Chair of the FCIC, at his toughest — failed to elicit any admission of fault from Greenspan.

Angelides’ lead role in the investigation has been called into question recently; a recent New York Times article notes that,

“a few commissioners said they were concerned that Mr. Angelides was more interested in holding prominent hearings than in selecting a few targets for deep examination. For example, the chief executives of four Wall Street banks testified in January, and Alan Greenspan, the former Federal Reserve chairman, will testify on Wednesday. The commission has issued no subpoenas even though it has the power to do so.”

This is unacceptable. We hope that as the testimony progresses, the Commission is able to turn up the heat in order to get down to the real, tangible causes of the worst financial crisis in most people’s memory.