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Wednesday, May 20, 2009

Greenspan Says Banks Need More Capital

You have to give former Fed chairman Alan Greenspan credit for having no shame. Well, he did once look a bit rattled before Congress for about five minutes and ‘fessed up it never occurred to him that people would be so greedy as to pull so much cash out of companies so as to leave burned hulks in their wake.

Did he utterly miss reading the news during Enron and the 2002 accounting scandals?

Greenspan also made life difficult for Bernanke in early 2007 more than once. Indeed, prior to Greenspan, no former Fed chairman made frequent pronouncements. This is unseemly, but having a sense of propriety went out of fashion in America some time ago.

Now Greenspan is saying the banks are not OK (if they need a lot more capital, then by definition, they are undercapitalized now) when the powers that be have a full court press on to present precisely that image. And whose responsibility might it be that the banks are in such sorry shape? Might the Greenspan Fed’s extreme laissez faire stance have had a wee bit to do with it?

Note also Greenspan was more upbeat only a bit more than a week ago.

From Bloomberg (hat tip readers Steve L. DoctoRx):

Former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis has yet to end even as borrowing costs tumble, warning that U.S. banks must raise “large” amounts of money.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

Greenspan’s comments suggest he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders…..

“We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” he said before a meeting with House of Representatives members on financial regulation that was organized by the Washington-based Bipartisan Policy Center.

Home prices will only start to stabilize once the “liquidation” rate of single-family homes has peaked, he said. “I don’t think we’re there yet.”

Topics: Banking industry, Economic fundamentals, Federal Reserve, Regulations and regulators

Email This Post Email This Post Posted by Yves Smith at 11:24 pm

9 Comments » Links to this post

9 Comments:

  • Views By a says:
    May 21, 2009 at 1:16 am

    Remember he’s pimping for Pimco. Almost certainly talking Pimco’s book.

    a

  • attempter says:
    May 21, 2009 at 1:50 am

    It’s pathetic but all too typical that even though Greenspan and his entire life’s work have been as thoroughly discredited as anything can be discredited, his reputation as a guru remains largely intact among the media.

    How badly would someone have to fail to lose credibility with this media, if what he stands for is the debt/growth delusion the current media depends upon for its existence?

    Which is the same question as, How badly does this ideology itself have to fail to lose credibility?

    It looks like no one is capable of learning a lesson short of a complete and irrevocable disaster. Thus, e.g., the squandering of precious time and resources on zombie banks.

  • michael says:
    May 21, 2009 at 4:35 am

    Greenspan’s a diva.

  • X says:
    May 21, 2009 at 5:11 am

    @attempter: It is almost impossible for a member of the ruling class to lose credibility, especially a financial insider. The parallel I see is Geithner. Short of Greenspan how many people should be more rightly lacking in credibility than Geithner? But the media loves him. Even the supposedly left-of-center MSNBC slobbers all over him whenever he is mentioned. MSNBC may favor dems while Fox favors repubs, but all corporate media is biased towards the ruling class no matter what party. They see infinite merit and intelligence in their own no matter how large or demonstrable their failures.

  • dheigham says:
    May 21, 2009 at 9:07 am

    Forget about saying what you think about Greenspan’s record. Just remember his history of willingness to leave financial ill alone.

    If a guy with that close contacts with the banks, and that record of non-intervention, says banks need a lot more capital, isn’t it very, very probable that they really do need a lot more capital than the Treasury has yet got them to raise?

  • Doc Holiday says:
    May 21, 2009 at 10:25 am

    I don't get Greenspan at all.

    Re: "We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,”

    > I just read the latest Newsweek, which seems to be like a cross between an infomercial, public relations effort and advertisement which is pumping like a steroid syringe, screaming to readers that the recession is over and that Bernanke, Paulson, Timmy, Bush and Obama clearly have helped get us back on course.

    This new ground scrapping low in investigative journalism by Newsweek, once again connects media-wide conflicts of interest with the desire for their shareholders to profit (in some twisted way) from creating news and information that is spun to falsify, manipulate and mask harsh reality, aka truth.

    To have Greenspan thinking outside The White House Spinning Box is really weird, because who ever have thought that Americans would look to Greenspan for balance and truth.

  • LeeAnne says:
    May 21, 2009 at 10:52 am

    The use of the word greed is as useful in a discussion on finance as the word lust. Does the fact that people will do bad things, often to excess for sex, status or security have anything to do with the enterprise of intentionally unleashing powerful incentives and instruments for committing those sins until no one can escape their deadly effect?

    We have laws, rules and regulations [do I really have to say this?] because man’s inhumanity to man can be taken for granted as well as his/her short sightedness and failure to see how how individual behavior effects others; failure to see the consequences of one’s behavior is the reality of children as the Chinese have recently accused the US of being by suggesting that we need adult supervision. Most of us like living in a civil society.

    Lawlessness in a society can go so far as to become the zeitgeist that forces everyone who wishes to survive to join. That is what happened here.

    People like Greenspan have lost all credibility; he has no credibility. Its only a failed information industry that would take him seriously enough to print. He has less credibility for all the harm he has done to the people of the world than any cult leader or follower; he not only played both sides of the Ayn Rand Institute enterprise he takes pride in talking double talk in his appearances before Congress and making fools of them like any petty criminal who when committing a crime believes there are no rules and that those who follow rules are fools.

    If it acts like a duck, talks like a duck, it is a duck. Greenspan acts like a crook, talks like a crook, and is a common crook.

  • Cat says:
    May 21, 2009 at 12:01 pm

    @LeeAnne: “We have laws, rules and regulations [do I really have to say this?] because man’s inhumanity to man can be taken for granted… Lawlessness in a society can go so far as to become the zeitgeist that forces everyone who wishes to survive to join. That is what happened here… like any petty criminal who when committing a crime believes there are no rules and that those who follow rules are fools.”

    Seriously brilliant statement. Needs to be engraved into the granite steps at the Treasury building.

    cougar

  • "DoctoRx" says:
    May 21, 2009 at 2:35 pm

    Of course Greenspan and PIMCO are on the same page.

    My question is whether Greenspan is Bernanke’s alter ego (bad cop to Gentle Ben’s good cop).

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