Fearing blame for the housing bubble and "very large losses" to come, Alan Greenspan tries to spin and justify his incompetence

What Greenspan fails to understand is it wasn't just his reckless lowering of interest rates to absurd levels and keeping them there for much too long. No, it was his unwillingness to do what was required of the Fed in regulating the out-of-control REIC, namely mortgage brokers, lenders and investment bankers.

And instead of talking about "froth", Greenspan could have stood up like a man and said "Good god folks, haven't you ever read Manias, Panics and Crashes? This housing bubble is the biggest financial fools game in human history and it's going to blow something fierce one day soon!"

Or something like that.

But here's Greenspan now, sensing correctly that he'll be blamed for this disaster. History will not be kind.

"After more than a half-century observing numerous price bubbles evolve and deflate, I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own.

There was clearly little the world's central banks could do to temper this most recent surge in human euphoria, in some ways reminiscent of the Dutch Tulip craze of the 17th century and South Sea Bubble of the 18th century.

The current credit crisis will come to an end when the overhang of inventories of newly built homes is largely liquidated, and home price deflation comes to an end. That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities.

Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of protracted adjustment, the U.S. economy, and the world economy more generally, will be able to get back to business.