Blame Europe, former Federal Reserve boss tells US inquiry into financial crisis

Former Federal Reserve chairman Alan Greenspan blamed much of the credit crunch and resulting financial crisis today on rampant demand from Europe for exotic financial derivatives based on the sale of US sub-prime mortgages.

Greenspan, who ran the US central bank for almost 20 years until 2006, said demand from Europeans for property investments that paid high rates of interest encouraged them to buy mortgage-backed securities that were tagged by credit-rating agencies as low risk.

Without the huge demand for exotic derivatives and the "dubious" participation of credit-rating agencies, along with investment banks, hundreds of small-time fraudulent mortgage lenders and a government bent on encouraging wider home ownership across the US, the crisis could have been avoided.

In testimony before the Financial Crisis Inquiry Commission, Greenspan said securitised sub-prime mortgages were the cause of the crisis, based on huge demand from US and European investors, and ratings agencies that applied AAA ratings to packages of sub-prime mortgages that were more likely BBB.

http://www.guardian.co.uk/business/2010/apr/07/blame-europe-alan-greenspan-tells-congress