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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 grilling from the House Committee on Oversight and Government Reform. We cannot expect perfection in any area where forecasting is required,'' he said. If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,'' Greenspan said.
Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony. Other rules should address fraud and settlement of trades, he said. Resistant to Regulation 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 subprime mortgages. The breakdown'' was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said. As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue,'' Greenspan said. That would give the companies an incentive to ensure the assets are properly priced for their risk, advocates say. Subprime Lending Greenspan said the Fed didn't know the size of the subprime mortgage market until late 2005.
Snow said the economy is headed down a bad, bad path'' and he endorsed consideration of more fiscal stimulus. For the longer term, Snow said the global financial system should be reorganized by focusing on increasing transparency of excessive'' leverage to prevent institutions from creating too much risk. The US needs one strong national regulator'' to oversee firms and fix what Snow called a fragmented approach'' to regulation. Steps to restore transparency and responsibility in the marketplace will go a long way towards restoring stability and confidence,'' he said.
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