Greenspan admits to ‘flaw’ in his

Former Federal Reserve Chairman Alan Greenspan said a
“once-in-a-century credit tsunami” has engulfed financial markets and conceded
that his free-market ideology shunning regulation was flawed.

“Yes, I found a flaw,” Greenspan said in response to a
grilling from the House Committee on Oversight and Government Reform. “That is
precisely the reason I was shocked because I’d been going for 40 years or more
with very considerable evidence that it was working exceptionally well.”

Greenspan said he was “partially” wrong in opposing
regulation of derivatives and acknowledged that financial institutions didn’t
protect shareholders and investments as well as he expected. Forecasting is an
inexact science, he said.

In May 2005 speech, Greenspan said that “private regulation
generally has proved far better at constraining excessive risk-taking than has
government regulation.”

Committee Chairman Henry Waxman, a California Democrat, said
Greenspan had “the authority to prevent irresponsible lending practices that led
to the sub-prime mortgage crisis.”

“You were advised to do so by many others,” he told
Greenspan. “And now our whole economy is paying the price.”

Greenspan opposed increasing financial supervision as Fed
Chairman from August 1987 to January 2006. Policy makers are now struggling to
contain a financial crisis marked by record foreclosures, falling asset prices
and almost $ 660 billion in writedowns and losses tied to US sub-prime
mortgages.

(Source : Business Standard, dated 24-10-2008)