Senate Majority Whip Blames Greenspan for Economic Crisis

     It’s been raised as a possibility and was even dismissed by former President Bill Clinton, however Senate Majority Whip Richard Durbin, D-Ill., said former Federal Reserve Chairman Alan Greenspan is partially at fault for the current economic crisis.

     According to Durbin, speaking at the Center for American Progress Headquarters in Washington, D.C. on Sept. 26, said it was Greenspan’s support of the 2001 Bush tax cuts and his reluctance to use regulatory authority to slow down subprime lending.

     “I can’t stand here in defense of Alan Greenspan,” Durbin said. “He was also the man who rationalized the Bush tax cuts which I think were a disaster. There were good things that he did over time and I won’t go into them one-by-one. But I think that was a fundamental error, which has driven up our deficit and it has caused a chain reaction. As America’s debt has grown, with a president who was the first in history to call for a tax cut in the midst of a war – we have had to borrow more money from foreign nations.”

     Greenspan’s support of the Bush tax cut came in January 2001, well before the Sept. 11, 2001 terrorist attacks and the subsequent invasions of Iraq and Afghanistan. However, Durbin maintained the tax cuts Greenspan supported encouraged foreign investment and that led to the ease of available credit and the eventual subprime crisis.

     “As a result, those foreign nations have looked for investments in the United States and they have bought into the same credit mess that we are now seeing is falling apart. So, they were looking for a fast buck. The subprime mortgage and the mortgage security industry was considered lucrative in return and with very little risk because historically mortgage default rates were so low. So, I would say that Greenspan’s decision of supporting Bush on tax cuts led to that infusion of foreign capital and investment in these bad credit histories.”

     Durbin also cited former Federal Reserve Governor Ned Gramlich, who Durbin claimed privately warned former Federal Reserve Chairman Alan Greenspan in 2000. Gramlich, Durbin said, had cautioned that although subprime mortgages opened the doors to home ownership that for many would have been inconceivable, they posed a risk to the American economy.

     “Ned Gramlich told the Fed chairman that subprime mortgages quote, ‘Jeopardize the twin American dreams of owning a home and building wealth,’ end of quote,” Durbin said. “And he urged Chairman Greenspan to crackdown on predatory mortgage lending. Chairman Greenspan said, ‘No.’”

     Durbin said the blame was squarely on the former Fed chief, who many others have also blamed for the current crisis.

     “If Greenspan and other members of Congress had paid attention, we might not be standing here today having this conversation,” Durbin added.

     Durbin also chastised what he called “free-market fundamentalists,” which he claimed were behind the “radical economic theory” responsible for the lack of regulatory oversight.

     “Sadly, this administration cannot see or bring itself to admit that this crisis is not an accident,” Durbin said. “It is not the result simply of incompetence, though that’s a major factor. This crisis is the result of a failure of a radical economic theory – a belief in the ability of untended free markets to solve all problems – what some call ‘anything goes capitalism,’ others call free-market fundamentalism.”

     He continued by besmirching the name of former President Ronald Reagan, who explained in his 1981 inaugural address that intrusive governments don’t solve problems, they create them.

     “Ronald Reagan summarized the soul of modern conservatism in his first inaugural address when he said, ‘Government isn’t the solution to our problem, government is the problem,’” Durbin said. “That in fact is the creed of the free-market fundamentalists. It’s a theory that substitutes free-market clichés for realistic and honest economic analysis and common sense.”

     Durbin instead looked toward Princeton professor and liberal New York Times columnist Paul Krugman for insight on handling the crisis and cited his column from earlier in the week.

     “As Paul Krugman wrote earlier this week, ‘Don’t expect to be rescued if you don’t expect to be regulated.’ We need a solution to this that’s effective and accountable. It must include smart, measured regulation that allows markets to grow in a reasonable, sustainable way instead of this destructive boom and bust.”