Greenspan: More Oversight of Banks

Now he tells us. Alan Greenspan famously gave millions of novice home owners the green light to jump into adjustable loan mortgages is now advising more oversight over banks.

After more than six decades as a skeptic of big government, the former Federal Reserve chairman, now 84, is gingerly suggesting that perhaps regulators should help rein in giant financial institutions by requiring them to hold more capital.

Mr. Greenspan, once celebrated as the “maestro” of economic policy, has seen his reputation dim after failing to avert the credit bubble that nearly brought down the financial system. Now, in a 48-page paper that is by turns analytical and apologetic, he is calling for a degree of greater banking regulation in several areas.

Greenspan argues for higher reserves, a return of Glass Steagall, and he wants a requirement that banks hold bonds that automatically convert to equity when their equity falls below the required level.

Under capitalization is one of the untold stories of the financial crisis. Banks were not only taking massive risk but they were highly leveraged in that risk. A return to Glass Steagall is something I have endorsed as well. The third idea is most interesting since it's not been proposed anywhere I've seen. It's a way to make banks more accountable for their risk and it would reduce moral hazards.

Greenspan continued to insist that his own low interest rate policy didn't get the ball rolling on the crisis.