Audit Roundup: Greenspan’s Mea Culpa

One-time press hero faces its wrath; Jobs are scarcer than you think; etc.

The press, along with everyone else, has finally turned on Alan Greenspan, and it looks like there’s no going back. The shocking news from yesterday came when Greenspan testified to Congress that he was wrong about deregulation and that his free-market ideology hadn’t worked.

“I made a mistake,” Greenspan said, “in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”

The NYT, WSJ, and Washington Post are all good in their news coverage of the testimony, but the Journal and Post for some reason ignore Greenspan’s near dismissal of many of his ideological compatriots’ blaming of Fannie and Freddie for causing the crisis. So a tip of the hat to the Times for catching it:

Many Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies that were placed in a government conservatorship last month. Republicans have argued that Democratic lawmakers blocked measures to reform the companies.

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”

Daniel Gross over at Slate has a worth-reading piece on how the unemployment rate is artificially low. That’s because it’s not catching underemployment and people who’ve just flat given up looking for work.

But the most troublesome is the U6. The U6 is sort of the summa of job angst, a shorthand tally for the aggregate of job-related frustration… To compile the U6, the BLS takes the number of unemployed, plus all marginally attached workers, plus all of those employed part-time for economic reasons, and then calculates that total as a percentage of the sum of the entire civilian labor force plus marginally attached workers.

The U6 in September rose to 11 percent, its highest level since the data series started in 1994 and significantly higher than it was in the last recession, in 2001.

Bloomberg has a creative angle on how the global elite partied while the troubles built. It gets inside the World Economic Forum in Davos and finds the organizers laden with guilt—and pointing figures at their decadent attendees for being in “psychological denial” of the insanity that led to the bust.

Steinberg recalls the attitude among some of the delegates at Davos from 2003 through last January. “It was clear irresponsibility on their part and it’s more damning than anyone can imagine,” says Steinberg, who has been with the WEF for more than a decade. The former McKinsey & Co. management consultant supervises the forum’s finance-industry delegates.

“By 2003, the over-leveraging of the system was a serious topic of conversation, but the some 60 of WEF’s corporate members from the financial world never had an understanding of how big a problem it was,” Steinberg adds…

Steinberg says the most-discussed housing issue among some delegates centered on Davos’s Belvedere Hotel, where corporate chieftains and their deputies were “more interested in entering into bidding wars to secure the biggest party room than they were in attending sessions held there.”

The LA Times takes a nice look at how Countrywide’s mortgage-workout plan—which it was forced to create in settling lawsuits over its years of fraudulent activity&mdsah;could be a model for the rest of the country.

The Countrywide plan, which is aimed at borrowers with subprime mortgages or pay-option adjustable-rate home loans, known as option ARMs, would temporarily cut interest rates on some loans to as low as 2.5%. Some borrowers who owe more than their homes are worth could even see their loan balances reduced, giving them equity once again in their properties.

The idea is to modify a loan’s terms just enough to create a new monthly payment, including principal, interest, taxes and property insurance, equal to 34% of a borrower’s verified monthly income.

Rep. Barney Frank, who heads the House Financial Services Committee is trying to force other big companies into similar plans.

I like the Journal’s Ahead of the Tape column today. It points out that Libor, which finally has been decreasing a bit, may not be the best credit indicator to be watching now. This is important because while most people follow the gyrations of the stock market to indicate how bad things are, it’s the debt indicators that really illustrate it.

The problem is that credit is still tightening for everybody else. Yields on below-investment-grade, or “junk,” corporate bonds have blown out to 16 percentage points above comparable Treasury bond yields. That is a record spread; the spread is usually less than six percentage points, and anything over 10 points is considered distressed.

Fannie and Freddie debt spreads over Treasurys have been at records, too, at least until Thursday, when Federal Housing Finance Agency chief James Lockhart spoke of an explicit government guarantee for this agency debt, an assurance his office later dialed back. Though commercial-paper rates have fallen, the market for this short-term debt is still shrinking, according to the latest Fed data, starving companies of vital financing.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.