Mr Greenspan admitted that there had been a “flaw” in his governing ideology.
Questioned by Henry Waxman, chairman of the House of Representatives oversight committee, the former Fed chief said he had “found a flaw” in his thinking. “I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders,” he said.
Mr Greenspan described the past two decades as a “period of euphoria” that encouraged participants in the financial markets to misprice securities, and accepted he had been wrong to assume that lending institutions would carry out proper surveillance of their counterparties. “I had been going for 40 years with considerable evidence that it was working very well,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”