We saw credit risks

Just a couple Alan Greenspan tidbits with which to end the week. Apparently the former Fed chief is set to meet with new British Prime Minister Gordon Brown this weekend and the BBC filed this report after an interview.

At odds with previous statements during a 60 Minutes interview that the Fed hadn't had a clue what was going on in subprime mortgage markets up until late 2006 comes this account where they were all-knowing about subprime credit risks for hedge funds but they weren't concerned because only rich people might lose money.

The credit crunch has brought havoc to global markets, and hit the UK with the crisis around Northern Rock.

One of the key causes was the bundling together and selling of debt from sub-prime mortgages, which subsequently saw high levels of missed payments.

Institutions which were stung by this then became less keen to loan money elsewhere, resulting in a tightening of credit.

"We did know what was going on and the reason we didn't stop them was that to a large extent these types of questionably egregious actions are taken by people who have their own money invested," he said.

"Hedge funds, who are presumably the largest culprit of all of this, are organisations in the US in which wealthy investors invest.

"I must admit that I do not have considerable concern about their net worth going from 40 million to five million, which in many cases is what's happened."

So, he was aware of subprime credit risks for hedge funds, but not aware of how subprime lending might have exacerbated the housing bubble?

No, he's already stated that "it’s far better to have people periodically going to excess with its adverse consequences than to try to block it off in the beginning (August 7th).

Hmmm... confusing.

Also, in this debate with Naomi Klein at Democracy Now!, he is once again successful in shifting the "interest rates too low"question back to the "conundrum" problem - being powerless to affect mortgage lending in the U.S.:

AMY GOODMAN: The sub-prime crisis that we are seeing today, many saying that you seriously contributed to this, laid the foundation with keeping the interest rates low.

ALAN GREENSPAN: Well, the sub-prime crisis did occur as a result of lower interest rates. The lower interest rates, however, are, if one takes a look at the whole context of rising home prices throughout the world, is clearly a global issue. It is the result of fundamental changes that occurred as a consequence of the end of the Cold War, and that housing bubbles appear in more than two dozen countries around the world, which screams for an explanation that is global, not individual.

Didn't most of the toxic subprime mortgages use adjustable rate loans that are based on short-term interest rates that the Fed had complete control over?