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Greenspan talks a big game, but don't forget he led us into this mess

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Alan GreenspanAlan Greenspan told business leaders in Tokyo via video conference that cutting excess home inventories in the U.S. is the key to stabilizing the financial system at home and in the rest of the world. And I'm sure he's right. He hasn't given any details about how he thinks it should be done, but he does state what seems to be obvious.

He also doesn't appear to be taking any blame for what we are now facing, even though he was the one in charge while the problems were building. Remember he left the Fed in 2006. He let the banks continue the lending practices that are finally being scrutinized now that the crisis is at hand. As I posted earlier today, the Fed is finally looking at ways of cleaning up this mess.

What is the Fed planning to do? It is reviewing mortgage-related rules and plans to announce new bans on deceptive advertising practices by the end of the year, as well as looking at ways to improve consumer disclosures. Also in the works are new rules related to prepayment penalties, escrow practices for taxes and insurance, stated-income and low-documentation lending and adequate consideration of a borrower's ability to pay. I hope they're also looking at ways banks book derivatives, especially the games they're playing to keep things off the books.

Greenspan should have been on top of this before the mess became the crisis we see today. He was the one in charge while these fires smoldered in the lending world. While I applaud the Fed for finally taking action, I have a hard time giving applause to Greenspan for his way-too-late public pronouncements.

Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to the Federal Reserve."

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Last updated: November 10, 2009: 07:48 AM

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