LONDON, April 7 Former Federal Reserve Chairman
Alan Greenspan has defended himself from charges that easy U.S.
monetary policy created the current credit crisis by inflating a
housing bubble, and instead blamed professional investors.
In an article in Monday's Financial Times newspaper,
Greenspan wrote that the housing bubble which inflated between
2001 and 2006 had not been unique to the United States.
"The U.S. bubble was close to median world experience and
the evidence that monetary policy added to the bubble is
statistically very fragile," Greenspan wrote.
Under Greenspan the Fed cut rates from 6.5 percent in late
2000 to 1.0 percent in mid-2003. Most other leading central
banks followed suit, although not to such low levels apart from
the Bank of Japan.
The Fed has been accused of keeping rates too low for too
long as it sought to help the U.S. economy following the
collapse of internet stocks and the blow to confidence from the
Sept. 11, 2001 attacks.
But Greenspan noted that U.S. economic conditions were still
sluggish as late as June 2003, when the Fed cut rates to the 1.0
percent low. It began raising them a year later but even then,
he said, monetary conditions were not bubble-making.
"Both the monetary base and the M2 indicator rose less than
5 percent in the subsequent year (2004), scarcely tinder for a
massive credit expansion," he wrote.
Instead, Greenspan placed blame for the U.S. housing and
subprime mortgage crisis at the door of investors. "The core of
the subprime problem lies with the misjudgments of the
investment community," he wrote.
Subprime-mortgage securitisation exploded because it
appeared misspriced and there were few delinquencies and
defaults, "creating the illusion of great profit opportunities".
Lenders were then pressed by securitisers for mortgage paper
"with little concern about its quality".
Greenspan also said he doubts tightening of regulation would
have solved the problem. "The problem is not the lack of
regulation but unrealistic expectations about what regulators
are able to prevent," he wrote.
(Reporting by Jeremy Gaunt; editing by David Stamp)