Capitol Hill
23 October 2008
Former U.S. Federal Reserve Chairman, Alan Greenspan, has predicted
further negative impacts for Americans from the U.S. and global
financial crisis, which he called a credit tsunami. VOA's Dan Robinson
reports, Greenspan and two other current and former U.S. officials,
faced tough questioning from lawmakers in a congressional hearing.
The
longest-serving chairman of the U.S. central bank until he was replaced
by Ben Bernanke in 2006, Greenspan called the financial and credit
crisis a "once in a century credit tsunami" brought about by heavy
demand for securities backed by sub-prime mortgages.
The crisis
has been much broader than anything I could have imagined, Greenspan
said, leaving him and other economic experts in a state of shocked
disbelief.
"Given the financial damage to date, I cannot see how we
can avoid a significant rise in layoffs and unemployment," he said.
"Fearful American households are attempting to adjust as best they can
to a rapid contraction in credit availability, threats to retirement
funds and increased job insecurity."
For the crisis to end,
Greenspan added, U.S. housing prices must stabilize, something he said
is still many months in the future.
A future economic
landscape, he said, would be characterized by exceptional investor
caution, particularly where investment instruments are concerned,
leading to a more sustainable sub-prime mortgage market.
Greenspan
has faced criticism that as Federal Reserve chairman for more than 18
years, he resisted tighter market regulation, and kept U.S. interest
rates too low, fueling a surge in risky sub-prime mortgages.
Committee Democrats questioned decisions and statements he made about the U.S. housing market.
Democratic
panel chairman Henry Waxman asked if the crisis has changed his
ideological positions on regulation and the operation of free markets.
"In other words, you found that your view of the world, your ideology was not right, it was not working," asked Waxman.
"Precisely, that is precisely the reason I was shocked, because I had
been going for 40 years or more with very considerable evidence that it
was working exceptionally well," Greenspan replied.
Securities and Exchange
Commission chairman Christopher Cox was sharply challenged by Maryland
Democrat Elijah Cummings about efforts now to crack down on one aspect
of the credit mess.
Cummings: "You became SEC chairman over
three years ago. Why didn't you act sooner to require this disclosure
of credit default swaps?"
Cox: "If you wish me to answer
explicitly, where was I, I was here with you, indeed I was
vice-chairman of this committee, when Congress had the opportunity to
do what I am asking Congress to do now, which is to close this
regulatory hole."
Cummings: "But I'm talking about the three
years that you were there, we paid your salary, the taxpayers the ones
that are losing their homes right now paid your salary for three years."
Minority
Republicans also questioned decisions by Greenspan, Cox, and former
Treasury Secretary John Snow, although Republican criticisms were not
as sharp as Democrats.
In a separate hearing, the U.S. treasury
official overseeing the $700 billion program approved by Congress to
rescue financial institutions, said it is having a positive effect, but
Neel Kashkari added a cautionary note.
"Since the announcement of our capital
purchase program, we have seen numerous signs of improvement in our
markets and in the confidence in our financial institutions," he said.
"While there have been recent positive developments, the markets remain
fragile."
Thursday's hearing took placed amid continued
volatility in U.S. financial markets, amid investor concerns about the
economy, and new figures showing increases in home foreclosures.
At
the White House, press secretary Dana Perino declined to use the word
recession to describe the economic situation, but said President Bush
knows the country is in "for a rough ride."