Everyone is still looking for a scapegoat for the financial crisis that precipitated the current economic malaise. And one of the popular targets has been former Federal Reserve Chairman Alan Greenspan.
Greenspan recently testified on Capitol Hill and was pressed about how he may have contributed to the financial crisis. According to Suze Orman, host of CNBC’s “The Suze Orman Show,” some of the blame should go to Greenspan for a 2004 speech he made to the Credit Union National Association.
Greenspan had said some might have “saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade,” but he did preface it by saying that wouldn’t have been the case if rates adjusted upwards as they did. But Orman, appearing on MSNBC’s April 8 “Morning Joe” contended he shouldn’t have commented on those mortgages at all.
“Well, some blame should be placed on him,” Orman said. “I was telling one of your producers, and I'm not sure I have this date exactly right, but I'll never forget around the year 2004, I think it was Feb. 23, to be exact, something like that. I was watching television and he goes on TV and he says, ‘Everybody, if you had gotten an adjustable rate mortgage 10 years ago, which would have made it 1994, you would have made so much more money on your mortgage and your home than if you had gotten a fixed rate mortgage.’ And I'm sitting there, going, ‘No! No! Don't do that! Don't do that! Everybody's going to start getting an adjustable rate mortgage at the exact time they shouldn't.’”
Orman told viewers those remarks were what inspired all the exotic debt instruments traded on Wall Street – which aren’t necessarily the same as an adjustable-rate mortgage.
“And sure enough, that's right around when you started to see mortgage companies come out with these negative amortization loans, no money down loans, opt-in, opt-out – all these different things that the Fed chairman said,” Orman continued. “Loans like that, even though he didn't say ‘like that,’ but when he said adjustable rate – what do people know? So, it was right around then that things started to turn around. And I’ll never forget coming on television and saying to everybody, ‘What was he thinking? Why did he do that?’ And to this day, I'll never understand it.”
Ultimately she said the banks were at fault for the financial crisis, but Greenspan had to share the blame. However, she still didn’t place any blame on the irresponsibility of the borrowers, which curiously is a theme of Orman’s CNBC show.
“However, bottom line is, he's not the one to blame for this,” Orman continued. “Maybe he had some responsibility, but, oh, give me a break. You had Lehman Brothers that had very sketchy accounting methods. You had Goldman Sachs that was betting against both sides of the market. They were betting on real estate going down, by insuring everything with AIG, at the same time, they were selling these instruments. They had a fortune to make. Believe me, it was far more than what Alan Greenspan did. You can blame Wall Street and the bankers for this one.”