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Fleck: Did Greenspan push risky home loans?

Contrarian Chronicles2/4/2008 12:01 AM ET

The former Federal Reserve chairman denies he encouraged adjustable-rate mortgages. Here's what he said; you decide.

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/DidGreenspanPushRiskyHomeLoans.aspx

Having just written a book on Alan Greenspan, I assumed I wouldn't have much more to say on the subject for quite some time. But a week and a half ago, the former Federal Reserve chief made a claim so outrageous I felt it needed to be discussed.

On a recent trip to Canada, I happened to read a story in The Globe and Mail, "Greenspan on the defensive," about a question-and-answer session he'd just done with Sherry Cooper, the chief economist at BMO Nesbitt Burns, before a Vancouver business audience.

Weapons of mass denial
Reporter Wendy Stueck described the chairman's version of a now infamous speech as follows: "Mr. Greenspan also denied being a booster for risky mortgage products, saying that while he noted advantages in some new mortgage products in an oft-referenced 2004 speech, he spoke in favor of conventional mortgages in an address a week later that has been ignored."

Being quite familiar with that 2004 speech -- in which the chairman had been rather emphatic -- I was shocked to read this claim. I decided to investigate, first by seeing what exactly Greenspan had said in the Q&A with Cooper.

Here is an excerpt of The Globe and Mail's raw Q&A transcript as captured by a court reporter; no audio recording was allowed. Though a bit rough, I have left the transcript in its original form, except for the removal of some nearly incomprehensible phrases in order to make it more readable.

MR. GREENSPAN: In 2004 I went before a Credit Union . . . and I discussed the pros and cons of various types of consumer finance, and I pointed out that . . . fixed rate 30-year mortgages cost a significant amount over the adjustable rate mortgages to buy the insurance against the rise of interest rates. And I said that there are occasions in which that would be a very good thing, and indeed I made a presentation which said that over the past 10 years it would have been very sensible to have taken them (ARMs) out and then at the end of it said of course if interest rates had gone up, it would have been something else.

MS. COOPER: That part was left out.