So Who Does Alan Greenspan Blame?

For months, Wall Street has been blaming Alan Greenspan for the financial crisis. Alan Greenspan returns the favor, and blames Wall Street:

The truth is, Alan Greenspan made a very important point in his initial testimony that bears repeating. The blame for the credit crisis belongs to Wall Street.

The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originizations, undeniably the original source of the crisis, would have been far smaller and defaults accordingly far fewer. But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world.

...That's right. Alan Greenspan went before Congress and did not, at least in his initial statement, blame Fannie Mae or Freddie Mac or the Community Reinvestment Act or stupid homeowners or fraudulent lenders for the subprime meltdown and the ensuing credit crisis. He blamed the demand for risk from both the banks who would repackage the dodgy loans as exotic securities and the investors whose taste for these hotcakes could not be satisfied.

The private sector created the incentive to make bad loans. The private sector, despite its vaunted reliance on a "vast risk management and pricing system [that] has evolved combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology," failed to properly judge the risk inherent in those securities. The private sector, voracious for high-yielding risk, and unmindful of history, steered the global economy right off the tracks.

Alan Greenspan said it. It must be true.