by Calculated Risk on 10/23/2008 06:10:00 PM

I've received numerous emails concerning Greenspan's testimony today. Greenspan has been criticized for keeping rates too low (see CNN: Culprits of the Collapse), however his far larger mistake was opposing oversight when many people were pointing out the extremely lax lending standards.

So I was happy today that the Q&A focused on this issue ... from the WSJ: Greenspan Admits Some Mistakes Amid Grilling by House Lawmakers

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief," according to Mr. Greenspan.

The panel chairman, Henry Waxman (D., Calif.) criticized Mr. Greenspan's approach to mortgage regulation while he was Fed chairman. The Fed "had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market," Waxman said, but Mr. Greenspan "rejected pleas that he intervene."
...
[W]hen Mr. Waxman pressed "were you wrong" about the benefits of deregulation, Mr. Greenspan responded, "partially." The "flaw" in the assumptions he had over four decades, Mr. Greenspan said, was that lending institutions themselves were best able to protect the interest of their shareholders.

Greenspan's comments on the economy are also interesting:

"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Mr. Greenspan said in the text of prepared testimony to the U.S. House Government Oversight and Reform Committee.

That, in turn, "implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in their 401Ks but in the value of their homes as well," Mr. Greenspan said.

While Mr. Greenspan assured lawmakers that "this crisis will pass" and that the U.S. will end up with a "far sounder financial system," he warned that it won't come quickly.

Mr. Greenspan said a "necessary condition for this crisis to end is a stabilization of home prices in the U.S."

"At a minimum, stabilization of home prices is still many months in the future," he said.

Greenspan is now saying what many of us were warning about several years ago.