Greenspan: You can't eliminate crises

Former Federal Reserve Chairman Alan Greenspan said the financial system needs new standards to prevent future meltdowns, but he cautioned that regulators cannot "fully eliminate the possibility of future crises."

"If capital and collateral are adequate . . . losses will be restricted to equity shareholders who seek abnormal returns," Greenspan told the Financial Crisis Inquiry Commission in the first of three days of hearings about the financial crisis.

"Taxpayers will not be at risk. Financial institutions will no longer be capable of privatizing profit and socializing losses."

Greenspan also said the Federal Reserve's monetary policy did not cause the housing bubble.

"The house price bubble, the most prominent global bubble in generations, was engendered by lower interest rates, but it was long-term mortgage rates that galvanized prices, not the overnight rates of central banks, as has become the seeming conventional wisdom," Greenspan insisted.

Greenspan also said that "regulators cannot successfully use the bully pulpit to manage asset prices, and they cannot calibrate regulation and supervision in response to movements in asset prices."

Patricia Lindsay, a former executive at the failed subprime lender New Century Financial, will also testify today.

On Thursday, the commission will hear from former executives from Citigroup (C), including Robert Rubin and former CEO Chuck Prince, followed by executives from Fannie Mae (FNM) and Freddie Mac (FRE) on Friday.

The commission is made up of six Democrats and four Republicans. It has the authority to issue subpoenas, hold hearings and get testimony, and it is supposed to report its findings and recommendations by Dec. 15.