BY JEANNINE AVERSA
The Associated Press
WASHINGTON - Even the maestro didn't see it coming.
Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to recognize early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.
In an interview, Greenspan said he was aware of "subprime" lending practices where homebuyers got very low initial rates only to see them jacked up later, causing severe payment shock. But he said he didn't initially realize the harm they could do.
"While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he said in a CBS "60 Minutes" interview to be broadcast Sunday. "I really didn't get it until very late in 2005 and 2006," Greenspan said.
An excerpt of the interview was released Thursday.
As Fed chief, Greenspan's handling of the economy had earned him monikers, including the maestro, the greatest central banker who ever lived and the second-most important person in Washington.
Yet, some wonder whether the Greenspan Fed could have done more to prevent lax lending standards, bad loans and other problems that have since come to light in the higher-risk subprime mortgage market.
Some blamed Greenspan's interest rate policies for feeding the housing frenzy. Sales had hit record highs and house prices galloped from 2001 to 2005. Then the market fell into a deep slump.
The Greenspan Fed from early 2001 to the summer of 2003 had slashed interest rates to their lowest level in decades. It was done to rescue the economy from the blows of the bursting of the stock market bubble, the 2001 recession, the terror attacks and a wave of accounting scandals that shook Wall Street.
Critics say the Fed kept rates too low for too long, encouraging a Wild West mentality in housing.
Greenspan, however, defended the institution's actions.
"They are mistaken," he said of the critics. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he said.