Former Federal Reserve Chairman Alan Greenspan tried to explain his version of the reasons for the global economic crisis to a congressional panel, while expressing shock and disbelief that the problems had spread so far.

In testimony before the House Committee on Oversight and Government Reform at a hearing on the role of federal regulators in the financial crisis, Greenspan noted that subprime mortgages were the root of the problem, but indicated that the real crisis stemmed from the uncontrolled securitization of those mortgages.

"The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of crisis) would have been far smaller and defaults accordingly far fewer," he said. "But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world. These mortgage-backed securities being 'subprime' were originally offered at what appeared to be exceptionally high risk-adjusted market interest rates. But with U.S. home prices still rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, they were wrongly viewed as a 'steal.'"

Greenspan noted that there was a surge in global demand for U.S. subprime securities by banks, hedge funds and pension funds that were supported by "unrealistically positive rating designations by credit agencies."

SEC Chairman Christopher Cox also testified, ascribing many of the problems to lapses in regulation after previous financial crises. "While the nation learned much in 1987, and Congress made some constructive changes in regulation, people and institutions too quickly fell back into old habits in old ways," he said. "We read now with disappointment the history of regulatory turf battles and missed opportunities, of old-fashioned greed and misguided economic incentives, of regulations that either failed or had unintended consequences."

Former Treasury Secretary John Snow blamed lax risk management and lending practices. "Speaking broadly, what we have witnessed is a breathtaking breakdown in traditional risk management activities in the financial sector, from lax lending practices--including the now infamous 'liar loans'--to the spread of highly complex and opaque financial products, the risks of which weren't properly evaluated by issuers, investors, or rating agencies, all of which combined to create immense risks the scale of which wasn't readily apparent to anyone," he said.

Committee Chairman Henry Waxman, D-Calif., blamed regulators and Congress alike. "Congress is not exempt from responsibility," he acknowledged. "We passed legislation in 2000 that exempted financial derivatives from regulation. And we took too long - until earlier this year - to pass legislation strengthening oversight of Fannie Mae and Freddie Mac. Over and over again, ideology trumped governance."

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