WASHINGTON (CN) – Former Federal Reserve Chairman Alan Greenspan on Wednesday deflected accusations from a committee examining the subprime mortgage crisis, saying his decision to keep interest rates low did not contribute to the housing bubble. “Low rates did not encourage risky lending,” Greenspan said.
Greenspan was the lead witness during the first three days of hearings before the Financial Crisis Inquiry Commission, a 10-member bipartisan panel charged with investigating the causes of the subprime mortgage crisis.
Greenspan said the Fed warned about the dangers of subprime lending and low down-payment mortgages in both 1999 and 2001.
“When you’ve been in government for 21 years, as I have been, the issue of retrospect and figuring out what you should have done differently is a really futile activity,” Greenspan said. “I was right 70 percent of the time. But I was wrong 30 percent of the time, and there were an awful lot of mistakes in 21 years.”
Greenspan warned that it would be nearly impossible to prevent another major financial crisis, but said that its impact could be lessened if banks were required to have more capital and financial traders were forced to be backed by high levels of collateral.
Richard Bowen, former senior vice president at CitiMortgage Inc., also testified Wednesday, telling the panel that he informed his superiors of the dangers of the company’s mortgage practices.
The commission, created by President Obama in May 2009 under the Fraud Enforcement and Recovery Act, is charged with examining possible fraud and abuse in the financial sector.
It’s also looking into the actions of federal and state regulators, accounting practices, the behavior of credit ratings agencies, credit availability, monetary policy, and related issues. The committee is scheduled to deliver a report on the crisis on Dec. 15, 2010.
On Thursday, the commission will hear testimony from former Citi chairman Robert Rubin and former Citibank CEO Chuck Prince, and from former Fannie Mae executives Robert Levin and Daniel Mudd on Friday.