Former Fed Chairman on 60 Minutes

It is better to be thought an economic genius and steer away from 60 minutes than agree to an interview and damage the illusion. In an excerpt from an upcoming interview, the former Federal Reserve Chairman Alan Greenspan stated he was aware of "subprime" lending practices where homebuyers got very low initial rates only to see them later jacked up, 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 during CBS "60 Minutes" interview, "I really didn't get it until very late in 2005 and 2006." He went on to acknowledge his failure to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.

A meltdown in the "subprime" mortgage market has rocked Wall Street and Main Street. Foreclosures and late payments have soared, and lenders have gone out of business. Some economist believe this has increased chances the economy might slide into a recession this year.

The late Edward Gramlich, a former Federal Reserve Board governor, had raised a red flag about questionable lending practices. However, Greenspan maintained there was little the Fed could do about the "subprime" situation. This is interesting considering one of the duties of the Fed is to oversee the regulation of banks and consumer-protection laws. Greenspan's statements are even harder to believe considering he had warnings about the "subprime" phenomenon.

In 2000, Gramlich, concerned that states were letting questionable lending practices flourish, proposed expanding the Fed's oversight to some mortgage lenders that weren't banks. But Chairman Alan Greenspan rebuffed him. (Mr. Greenspan has said he doesn't recall the exchange but doesn't dispute it.)