That of course is fine, but it is a bit painful that the NYT gives him a column to lecture the rest of us on how things would have been different in 2005 if the Fed had been given the title of "systemic risk regulator." Blinder says: "Suppose such a regulator had been in place in 2005. Because the market for residential mortgages and the mountain of securities built on them constituted the largest financial market in the world, that regulator probably would have kept a watchful eye on it. If so, it would have seen what the banking agencies apparently missed: lots of dodgy mortgages being granted by nonbank lenders with no federal supervision. If the regulator saw those mortgages, it might then have looked into the securities being built on them. That investigation might have turned up the questionable triple-A ratings being showered on these securities, and it certainly should have uncovered the huge risk concentrations both on and off of banks’ balance sheets. And, unless it was totally incompetent, the regulator would have been alarmed to learn that a single company, American International Group, stood behind an inordinate share of all the credit-default swaps — essentially insurance policies against default — that had been issued. This counterfactual suggests that history might have been quite different — and much better." See, if Blinder had been in the country, he would have known that people were trying to call Greenspan's attention to the housing bubble and the bad mortgages that were helping to propel it. Greenspan dismissed these warnings as ignorant and misguided. He assured us that everything was fine in the housing market. Suppose that Alan Greenspan wore a hat that said, "systemic risk regulator." Does anyone think he then would have said: "oh my god, there is a huge housing bubble. When it collapses it will throw the economy into a huge recession and sink half of the country's financial system!" ? Actually, if anyone thinks that formally wearing the hat of systemic risk regulator would have changed Greenspan's response to the housing bubble, they weren't just out of the country, they were off the planet. Let's try to get serious here.
--Dean Baker
