It's interesting to compare the tone of Alan Greenspan's op-ed in today's Wall Street Journal ("The Fed Didn't Cause the Housing Bubble") with his testimony on the financial crisis from a few months ago. Here's Greenspan in October ("Greenspan Concedes Error on Regulation"):
"You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others," said Representative Henry A. Waxman of California, chairman of the committee. "Do you feel that your ideology pushed you to make decisions that you wish you had not made?"
Mr. Greenspan conceded: "Yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact."
[...]Mr. Waxman noted that the Fed chairman had been one of the nation's leading voices for deregulation, displaying past statements in which Mr. Greenspan had argued that government regulators were no better than markets at imposing discipline. "Were you wrong?" Mr. Waxman asked.
"Partially," the former Fed chairman reluctantly answered.
And here's Greenspan in today's Journal:
There are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages.
[...] It is now very clear that the levels of complexity to which market practitioners at the height of their euphoria tried to push risk-management techniques and products were too much for even the most sophisticated market players to handle properly and prudently.
However, the appropriate policy response is not to bridle financial intermediation with heavy regulation.