Former Fed chief refuses to take rap

Alan Greenspan says don’t blame him for the U.S. housing bubble, the sub-prime meltdown and the resulting credit crisis.

The real culprits are professional investors, the former Federal Reserve chairman wrote in an article published Sunday in Britain’s Financial Times newspaper.

Some critics have asserted that the easy U.S. monetary policy during the last several years of Greenspan’s Fed tenure was responsible for the rapid rising in U.S. housing prices.

But Greenspan said the surge in home prices from 2001 to 2006 was part of a worldwide phenomenon that can’t be pinned on the Fed’s actions.

“The U.S. bubble was close to median world experience and the evidence that monetary policy added to the bubble is statistically very fragile,” he wrote.

Under Greenspan the Fed cut its benchmark interest rate from 6.5% in late 2000 to 1% in mid-2003. Most other leading central banks followed suit, although not to such low levels apart from the Bank of Japan.

The Fed has been accused of keeping rates too low for too long as it sought to help the U.S. economy after the collapse of technology stocks and the blow to confidence from the Sept. 11, 2001, attacks.

But Greenspan said U.S. economic conditions were still sluggish as late as June 2003, when the Fed cut rates to 1%. It began raising them a year later.

He said an expansion of the money supply in 2004 was “scarcely tinder for a massive credit expansion.”

Instead, Greenspan, who retired as Fed chief in January 2006, placed blame for the U.S. housing and sub-prime mortgage crisis at the door of institutional investors.

“The core of the sub-prime problem lies with the misjudgments of the investment community,” he wrote.

Investors initially piled into bonds backed by sub-prime mortgages because there were few delinquencies and defaults, “creating the illusion of great profit opportunities,” Greenspan said.

Companies that packaged sub-prime loans into securities then pressed lenders for mortgage paper “with little concern about its quality,” he wrote.

Greenspan expressed doubt that more regulation would have solved the problem.

“The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent,” he said.