Greenspan says credit crunch worst since WWII

Former Federal Reserve Chairman Alan Greenspan said the credit crunch is the worst problem facing the country since World War II.

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Unfortunately, he neither offered much in the way of solutions nor took responsibility for his own quite large part in the debacle.

All he would do was blather that regulatory changes should not affect the mythical, hagiographic “free market system.” And, in fact, he defended large parts of the current system of securitization of various types of debt and credit:

I do not say that the current systems of risk management or econometric forecasting are not in large measure soundly rooted in the real world. The exploration of the benefits of diversification in risk-management models is unquestionably sound and the use of an elaborate macroeconometric model does enforce forecasting discipline.

He did admit that there is room for behavioral economics in the modern modeling world:

Forecasters’ concerns should be not whether human response is rational or irrational, only that it is observable and systematic.

And, where were you on that 5 or 10 years ago?