AEI Lachman: Greenspan should face court dereliction duty

Lachman appeared on C-Span programming this morning.

http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&products_id=281947-3&tID=5?main_page=calendar_search

He said Greenspan's call in to appear before a congressional committee was political positioning at this time just before the election. Lachman said Alan Greenspan should face a court of law after the election on dereliction of duty charges...

Learning from the Greenspan Legacy
By Desmond Lachman
Posted: Wednesday, February 20, 2008

LETTERS TO THE EDITOR
Financial Times
Publication Date: February 18, 2008

Sir, Your editorial "Learning from the Greenspan legacy" (February 16) correctly takes Alan Greenspan, the former chairman of the Federal Reserve Bank, to task for having maintained an overly accommodative interest rate policy for too long in the wake of the 2000 dotcom bust. However, it is surprisingly silent on Mr Greenspan's egregious lapses in the exercise of the Federal Reserve's regulatory responsibilities over the US financial system. Those lapses allowed a major easing in lending standards that both fuelled the housing market bubble and spawned today's subprime mortgage lending crisis.

Among the distinguishing characteristics of the US housing market bubble between 2000 and 2006 was the increased resort to subprime mortgage lending and to the only marginally better Alt-A mortgage lending. By 2006, around 40 per cent of all US mortgage lending took that form and a markedly increased proportion of those loans was of the adjustable rate mortgage variety. Further, with the passage of time, there was a progressive deterioration in mortgage lending standards.

This deterioration was reflected in ever higher loan-to-value ratios, often close to 100 per cent, and in the markedly decreased creditworthiness of the borrowers, who all too often were not required to document either their income or their assets.

While a staggering $1,300bn of subprime and $1,000bn of Alt-A lending was being undertaken, Mr Greenspan failed to voice concern over these dangerous lending practices. More importantly, he chose to forgo the regulatory authority vested in the Fed over the US financial system. In particular, he chose not to exercise his authority under the Home Ownership Equity Protection Act to rein in the non-bank mortgage loan originators, which were mainly responsible for originating and distributing subprime mortgages.

When the dust eventually settles on today's housing bust, Mr Greenspan should be held fully to account not only for his overly easy monetary policy stance but also for his dereliction of duty in properly regulating the US financial system.

Desmond Lachman is a resident fellow at AEI.

http://www.aei.org/publications/filter.all,pubID.27542/pub_detail.asp