210,000 Gallons per day leaking into Gulf

Oil Leak in Gulf of Mexico May Be 5 Times Initial Estimate
Chris Graythen/Getty Images

A boat sailed through crude oil that had leaked from the Deepwater Horizon wellhead in the Gulf of Mexico.
By CAMPBELL ROBERTSON and LESLIE KAUFMAN
Published: April 28, 2010

NEW ORLEANS — Government officials said late Wednesday night that oil might be leaking from a well in the Gulf of Mexico at a rate five times that suggested by initial estimates.
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The Oil Spill: Wildlife at Risk
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In Area With Few Options, Rigs Are Mixed Blessing (April 29, 2010)
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Oil Rig Blast Complicates Push for Energy and Climate Bill (April 28, 2010)
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Rising Oil Price Benefits BP Earnings (April 28, 2010)

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In a hastily called news conference, Rear Adm. Mary E. Landry of the Coast Guard said a scientist from the National Oceanic and Atmospheric Administration had concluded that oil is leaking at the rate of 5,000 barrels a day, not 1,000 as had been estimated. While emphasizing that the estimates are rough given that the leak is at 5,000 feet below the surface, Admiral Landry said the new estimate came from observations made in flights over the slick, studying the trajectory of the spill and other variables.

An explosion and fire on a drilling rig on April 20 left 11 workers missing and presumed dead. The rig sank two days later about 50 miles off the Louisiana coast.

Doug Suttles, chief operating officer for exploration and production for BP, said a new leak had been discovered as well. Officials had previously found two leaks in the riser, the 5,000-foot-long pipe that connected the rig to the wellhead and is now detached and snaking along the sea floor. One leak was at the end of the riser and the other at a kink closer to its source, the wellhead.

But Mr. Suttles said a third leak had been discovered Wednesday afternoon even closer to the source. “I’m very, very confident this leak is new,” he said. He also said the discovery of the new leak had not led them to believe that the total flow from the well was different than it was before the leak was found.

The new, far larger estimate of the leakage rate, he said, was within a range of estimates given the inexact science of determining the rate of a leak so far below the ocean’s surface.

“The leaks on the sea floor are being visually gauged from the video feed” from the remote vehicles that have been surveying the riser, said Doug Helton, a fisheries biologist who coordinates oil spill responses for the National Oceanic and Atmospheric Administration, in an e-mail message Wednesday night. “That takes a practiced eye. Like being able to look at a garden hose and judge how many gallons a minute are being discharged. The surface approach is to measure the area of the slick, the percent cover, and then estimate the thickness based on some rough color codes.”

Admiral Landry said President Obama had been notified. She also opened up the possibility that if the government determines that BP, which is responsible for the cleanup, cannot handle the spill with the resources available in the private sector, that Defense Department could become involved to contribute technology.

Wind patterns may push the spill into the coast of Louisiana as soon as Friday night, officials said, prompting consideration of more urgent measures to protect coastal wildlife. Among them were using cannons to scare off birds and employing local shrimpers’ boats as makeshift oil skimmers in the shallows.

Part of the oil slick was only 16 miles offshore and closing in on the Mississippi River Delta, the marshlands at the southeastern tip of Louisiana where the river empties into the ocean. Already 100,000 feet of protective booms have been laid down to protect the shoreline, with 500,000 feet more standing by, said Charlie Henry, an oil spill expert for the National Oceanic and Atmospheric Administration, at an earlier news conference on Wednesday.

On Wednesday evening, cleanup crews began conducting what is called an in-situ burn, a process that consists of corralling concentrated parts of the spill in a 500-foot-long fireproof boom, moving it to another location and burning it. It has been tested effectively on other spills, but weather and ecological concerns can complicate the procedure.

Such burning also works only when oil is corralled to a certain thickness. Burns may not be effective for most of this spill, of which 97 percent is estimated to be an oil-water mixture.

A burn scheduled for 11 a.m. Wednesday was delayed. At 4:45 p.m., the first small portion of the spill was ignited. Officials determined it to be successful.

42,000 Gallon per day leaking into Gulf

As efforts failed Tuesday to contain the flow of tens of thousands of gallons of oil leaking from an exploded well deep in the Gulf of Mexico, emergency response teams are considering a controlled burn-off of the oil on the water's surface as early as today.

Tuesday night, the expanding oil slick was about 20 miles off the coast of Louisiana and stretched 100 miles wide by 45 miles long at its greatest expanse.Workers were girding to protect environmentally sensitive areas nearby in the Mississippi River delta that are home to migratory birds and a nursery for nearly a quarter of the seafood production in the continental United States.

"It is the closest it's been to shore throughout this response, and we're paying attention to that, very careful attention to that," said U.S. Coast Guard Rear Adm. Mary Landry. She added that if the spill isn't contained, it has the potential to become "one of the most significant oil spills in U.S. history."

Watch video of the spill

Crews with BP Exploration and Production are using as many as eight remote-controlled submersible vehicles in an effort to trigger a shutoff valve, called a blowout preventer, that could stop the estimated 42,000 gallons of oil a day leaking from a well more than 5,000 feet below the surface of the Gulf. Those efforts came up short again Tuesday, and other alternatives to permanently containing the spill could be three months away.

NASA imageA closeup of the oil spill in the Gulf of Mexico, still 20 miles from the Louisiana coastline.

BP officials do not know why the blowout preventer did not engage after an explosion on the Deepwater Horizon drilling rig last week, in which 11 workers are still missing and presumed dead. A BP official estimated that the company is spending more than $6 million a day in efforts to contain the oil spill.An official with the Minerals Management Service, which regulates offshore drilling and mineral resources, said that the failure of the blowout device would certainly be the focus of an accident investigation. In the event the blowout preventer cannot be activated, BP is also working to build a series of containment domes that would be placed underwater to corral the oil and allow it to be pumped to storage tanks on nearby ships.

The company is also about to begin drilling separate "relief wells" that would intersect the leaking well and allow the company to pump a heavy drilling fluid into the well to counteract the flow. Eventually it would be plugged with concrete. That process could take up to three months, and the containment domes will not be finished for at least two to four weeks.

Meanwhile, the rhetoric ramped up Tuesday in Washington, with energy committees in both the House and Senate pledging to investigate the cause of the explosion.

First hearing on Capitol Hill is May 6

At the request of Sen. Mary Landrieu, D-La., the Senate Energy and Natural Resources Committee will hold a hearing May 6 on the rig disaster. A separate investigation by the Departments of Interior and Homeland Security has been under way since last week, and the heads of both agencies said Tuesday they will have the power to issue subpoenas and hold hearings to figure out what triggered the explosion and subsequent oil spill.

"This major accident and its potential implications to the environment need to be better understood," Landrieu said. "The public deserves a full hearing on this matter to ensure that everything that can be done is being done to maximize worker safety and minimize environmental damage."

Another environmental group, the Sierra Club, Tuesday joined Friends of the Earth in saying that the accident is another reason for Congress to reject the Obama administration's call for new drilling in the Eastern Gulf and the Atlantic Coast.

"This terrible tragedy is a sad reminder that oil is dirty, dangerous and deadly," said Athan Manuel, director of the Sierra Club's Lands Protection Program. "Instead of risking our lives, our coasts, our clean air, and our security by perpetuating our addiction to oil, it's time to build a clean energy economic that means more jobs, less pollution and real energy independence."

Chris John, a former Louisiana Democratic congressman who now is president of the Louisiana Mid-Continent Oil and Gas Association, said the accident is tragic, but that the oil and gas industry generally has a very good record of safety and avoiding major oil spills.

Goldman Sach's Gaming the market

By LOUISE STORY

WASHINGTON — The legal storm buffeting Goldman Sachs intensified on Monday as Senate investigators claimed the Wall Street giant had devised not one but a series of complex deals to profit from the collapse of the home mortgage market.

The claims suggested for the first time that the inquiries into Goldman were stretching beyond the sole mortgage deal singled out by the Securities and Exchange Commission.

S.E.C. accusations that Goldman defrauded investors in that single transaction, Abacus 2007-AC1, have thrust the bank into a legal whirlwind.

The latest claims came on the eve of what is expected to be a contentious Senate hearing on Tuesday, at which Goldman Sachs executives plan to defend their actions.

The stage for that hearing was set with a flurry of new documents from the panel, the Permanent Senate Subcommittee on Investigations. That was preceded by a press briefing in Washington, where the accusations against Goldman have transformed the politics of financial reform.

In the midst of this storm, Lloyd C. Blankfein, Goldman’s chairman and chief executive, plans to sound a conciliatory note on Tuesday.

In a statement prepared for the hearing and released on Monday, Mr. Blankfein said the news 10 days ago that the S.E.C. had filed a civil fraud suit against Goldman had shaken the bank’s employees.

“It was one of the worst days of my professional life, as I know it was for every person at our firm,” Mr. Blankfein said. “We have been a client-centered firm for 140 years, and if our clients believe that we don’t deserve their trust we cannot survive.”

Mr. Blankfein will also testify that Goldman did not have a substantial, consistent short position in the mortgage market.

But at the press briefing in Washington, Carl Levin, the Democrat of Michigan who heads the Senate committee, insisted that Goldman had bet against its clients repeatedly. He held up a binder the size of two breadboxes that he said contained copies of e-mail messages and other documents that showed Goldman had put its own interests first.

“The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients,” Mr. Levin said.

Mr. Levin’s investigative staff released a summary of those documents, which are to be released in full on Tuesday. The summary included information on Abacus as well as new details about other complex mortgage deals.

On a page titled “The Goldman Sachs Conveyor Belt,” the subcommittee described five other transactions beyond the Abacus investment.

One, called Hudson Mezzanine, was put together in the fall of 2006 expressly as a way to create more short positions for Goldman, the subcommittee claims. The $2 billion deal was one of the first for which Goldman sales staff began to face dubious clients, according to former Goldman employees.

“Here we are selling this, but we think the market is going the other way,” a former Goldman salesman told The New York Times in December.

Hudson, like Goldman’s 25 Abacus deals, was a synthetic collateralized debt obligation, which is a bundle of insurance contracts on mortgage bonds. Like other banks, Goldman turned to synthetic C.D.O.’s to allow it to complete deals faster than the sort of mortgage securities that required actual mortgage bonds. These deals also created a new avenue for Goldman and some of its hedge fund clients to make negative bets on housing.

Goldman also had an unusual and powerful role in the Hudson deal that the Senate committee did not highlight: According to Hudson marketing documents, which were reviewed on Monday by The Times, Goldman was also the liquidation agent in the deal, which is the party that took it apart when it hit trouble.

The Senate subcommittee also studied two deals from early 2007 called Anderson Mezzanine 2007-1 and Timberwolf I. In total, these two deals were worth $1.3 billion, and Goldman held about $380 million of the negative bets associated with the two deals.

The subcommittee pointed to these deals as examples of how Goldman put its own interests ahead of clients. Mr. Levin read from several Goldman documents on Monday to underscore the point, including one in October 2007 that said, “Real bad feeling across European sales about some of the trades we did with clients. The damage this has done to our franchise is very significant.”

As the mortgage market collapsed, Goldman turned its back on clients who came knocking with older Goldman-issued bonds they had bought. One example was a series of mortgage bonds known as Gsamp.

“I said ‘no’ to clients who demanded that GS should ‘support the Gsamp’ program as clients tried to gain leverage over us,” a mortgage trader, Michael Swenson, wrote in his self-evaluation at the end of 2007. “Those were unpopular decisions but they saved the firm hundreds of millions of dollars.”

The Gsamp program was also involved in a dispute in the summer of 2007 that Goldman had with a client, Peleton Partners, a hedge fund founded by former Goldman workers that has since collapsed because of mortgage losses.

According to court documents reviewed by The Times on Monday, in June 2007, Goldman refused to accept a Gsamp bond from Peleton in a dispute over the securities that backed up a mortgage security called Broadwick. A Peleton partner was pointed in his response after Goldman refused the Gsamp bond.

“We do appreciate the unintended irony,” wrote Peter Howard, a partner at Peleton, in an e-mail message about the Gsamp bond.

Bank of America ended up suing Goldman over the Broadwick deal. The parties are awaiting a written ruling in that suit. Broadwick was one of a dozen or so so-called hybrid C.D.O.’s that Goldman created in 2006 and 2007. Such investments were made up of both mortgage bonds and insurance contracts on mortgage bonds.

While such hybrids have received little attention, one mortgage researcher, Gary Kopff of Everest Management, has pointed to a dozen other Goldman C.D.O.’s, including Broadwick, that were mixes of mortgage bonds and insurance policies. Those deals — with names like Fortius I and Altius I — may have been another method for Goldman to obtain negative bets on housing.

“It was like an insurance policy that Goldman stuck in the middle of the sandwich with all the other subprime bonds,” Mr. Kopff said. “And it was an insurance policy designed to protect them.”

An earlier version of this article misidentified Senator Levin’s home state.

A Wall Street Invention Let the Crisis Mutate

By JOE NOCERA

Can it get any worse?

Every time you pick up another rock along the winding path that led to the financial crisis, something else crawls out. Subprime mortgages were sold as a way to give low-income people a chance at homeownership and the American Dream. Instead, the mortgages turned out to be an excuse for predatory lending and fraud, enriching the lenders and Wall Street at the expense of subprime borrowers, many of whom ended up in foreclosure.

The ratings agencies, which rated the complex investments that were built with subprime mortgages, turned out to be only too happy to be gamed by firms that paid their fees — slapping AAA ratings on mortgage bonds doomed to fail. Lehman Brothers turned out to be disguising the full reality of its horrid balance sheet by playing accounting games. All over Wall Street, firms pushed mortgage originators to churn out more loans that were doomed the moment they were made.

In the immediate aftermath, the conventional wisdom was that Wall Street had simply lost its head. It was terrible, to be sure, but on some level understandable: Dutch tulips, the South Sea bubble, that sort of thing.

In recent months, though, something more troubling has begun to emerge. In December, Gretchen Morgenson and Louise Story of The New York Times exposed the role that some firms, including Goldman Sachs and Deutsche Bank, played in putting together investment structures — synthetic C.D.O.’s, they were called — that were primed to blow up. They did so, reportedly, because some savvy investors wanted to go short the subprime market.

On Friday, the Securities and Exchange Commission dropped the hammer, charging Goldman Sachs with securities fraud for its purported failure to disclose that the bonds that were the basis for one particular synthetic C.D.O. had been chosen by none other than John Paulson, the billionaire hedge fund investor, who was shorting them.

Oh, and one other thing is starting to become clear: synthetic C.D.O.’s made the crisis worse than it would otherwise have been.

•

Remember in the months leading up to the crisis, when the Federal Reserve chairman, Ben Bernanke, and Henry Paulson Jr., then the Treasury secretary, were assuring everyone that the “subprime problem” could be contained? In truth, if the only problem had been the actual mortgage bonds themselves, they might have been right. At the peak there were well over $1 trillion in subprime and Alt-A mortgages that were securitized on Wall Street. That’s a lot, to be sure — but it was a finite number. You could have only as much exposure as there were bonds in existence.

The introduction of synthetic C.D.O.’s changed all that. Unlike a “normal” collateralized debt obligation, which contained the bonds themselves, the synthetic version contained credit-default swaps — derivatives that “referenced” a particular group of mortgage bonds. Once synthetic C.D.O.’s became popular, Wall Street no longer needed to feed the beast with new subprime loans. It could make an infinite number of bets on the bonds that already existed.

And why did synthetic C.D.O.’s become popular? One reason was that the subprime companies were starting to run out of risky borrowers to make bad loans to — and hitting a brick wall. New Century, a big subprime originator, went bankrupt in early April 2007, for instance. Yet three weeks later, the Goldman synthetic C.D.O. deal, called Abacus 2007-ACI, went through, because it was betting on subprime mortgage bonds that already existed rather than bundling new ones. It didn’t even have to go to the trouble of repackaging old C.D.O. tranches into new C.D.O.’s, which was also a common practice. (Goldman has vehemently denied any allegations of wrongdoing, pointing out that it lost $90 million on the particular Abacus deal that is the subject of the S.E.C. complaint.)

The second reason, though, is that synthetic C.D.O.’s gave people like John Paulson a way to short the subprime market. Mr. Paulson’s bet against the subprime market, which famously reaped the firm billions in profits, was the subject of a recent book, “The Greatest Trade Ever.” Boy, I’ll say.

Both Gregory Zuckerman, the author of that book, and Michael Lewis, who wrote the current best seller “The Big Short,” make it clear that the heroes of their narratives — the handful of people who had figured out that subprime mortgages were a looming disaster — were pushing Wall Street hard to give them a way to short the market. Maybe synthetic C.D.O.’s would have been created even without their urging, but it seems a little unlikely. They were the driving forces.

It is important to note that every synthetic C.D.O. required both investors who were long and others who were short. That is, there needed to be investors who believed the “referenced” bonds would rise in value, and others who believed they would fall. Everyone, on both sides of the transaction, understood that. What makes it feel like dirty pool is the allegation that Paulson & Company and Goldman Sachs were actively involved in choosing the bonds that would be bet on — knowing they were going to be short. In its filing on Thursday, the S.E.C. charged that Goldman never told investors of Mr. Paulson’s involvement. “Credit derivative technology helped people disguise what they were doing,” said Janet Tavakoli, the president of Tavakoli Structured Finance, and an early critics of many of the structures that have now come under scrutiny.

There appear to be other examples of this, as well. Last week, Pro Publica, the nonprofit investigative journalism outfit, reported how a big Chicago hedge fund, Magnetar, helped put together some synthetic C.D.O.’s — precisely so that it could bet against them. In his book, Mr. Zuckerman seems to have stumbled onto Abacus and similar deals. One banker, he writes, “suspected that Paulson would push for combustible mortgages and debt to go into any C.D.O., making it more likely that it would go up in flames.” Which is precisely what the S.E.C. is claiming. But in his quest to lionize his central character, Mr. Zuckerman rushes past what by all rights should have been the most shocking revelation in his book.

Mr. Lewis, for his part, recounts a dinner, late in the game, in which one of his heroes, Steve Eisman, is seated next to a man who is taking the long position on many of the C.D.O.’s he is shorting. They get to talking, and the man says to Mr. Eisman: “I love guys like you who short my market. Without you, I don’t have anything to buy.” He adds, “The more excited that you get that you’re right, the more trades you’ll do, the more product for me.”

As a reader, it is hard not to love that moment, rich as it is in irony and foreboding. The guy on the long side — who was making investments that the housing and mortgage markets would remain strong — is an obvious fool; Mr. Eisman, on the short side the trade, is clearly going to be vindicated. (And, by Mr. Lewis’s account, Mr. Eisman never “helped” a Wall Street firm pick the bonds for the C.D.O.’s he was shorting, the way the S.E.C. says Mr. Paulson did.)

But on second reading, the passage isn’t quite so funny. The people on the short side of those trades were truly savvy investors, who, unlike so many others, did their homework and had insights that made them a great deal of money. But the rise of synthetic C.D.O.’s that they pushed for — and their ability to use credit-default swaps to short subprime mortgage bonds — took an already bad situation and made it worse.

And here we are now, all of us, paying the price.

Goldman Sach's caught fixing MBS's

Saturday 17 April 2010

One tweet yesterday said it all: "How can the [US] government sue Goldman Sachs? I thought Goldman Sachs ran the government." That charge is just a tad harder to make today, now that the biggest investment bank on Wall Street is fighting a civil suit for fraud filed by a government watchdog. For anyone who wants a reckoning for the economy-devastating episode that is the banking crisis, this bears the promising indications of war between Wall Street and Washington.

Even more satisfying, this case goes straight to the heart of the financial crisis: it is about the dodgy sub-prime mortgage vehicles that drove all the market madness. According to the Securities and Exchange Commission, Goldman Sachs created a package of dodgy home loans and flogged it to investors – without disclosing that one of its hedge-fund clients had picked the loans that went into the package, and had bet that the investments would fall in value. What this amounts to is an allegation that Goldman knocked up a stinky investment that it knew would tank and scammed investors into buying it. Goldman Sachs made money, the hedge-fund billionaire John Paulson made money – and the suckers lost more than £650m. If any British taxpayer wants to know who these suckers were, look in a mirror: our own RBS was the ultimate insurer for the deal and had to pick up the tab.

Goldman calls the allegations "unfounded in law and fact". But without wishing to get into what is set to be a big, bloody battle, it is possible to make three observations. First, Goldman Sachs is going to have a hard time warding off the damage to its reputation done by this case. For a taster, look at page 7 of yesterday’s SEC filing, which quotes an email from Fabrice Tourre, the executive who helped make and sell this investment: "The whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab[rice Tourre] … standing in the middle of all these … exotic trades he created without necessarily understanding all of the implications of those monstruosities!!! [sic]" Coming from a bank that bangs on about its good name and fair dealing, this stinks.

Second, this case marks a distinct turn in Washington’s approach to Wall Street – and about time too. With the healthcare battle settled, Barack Obama is again talking about reforming the banks. Let us hope that his bark is accompanied by a decent bite. Finally, months before any regulatory action, this story was reported in detail by the New York Times. Whatever happens in the case, its very existence is testimony to the role that good journalism can play in uncovering difficult and complex stories that affect us all

I Saw the Crisis Coming. Why Didn’t the Fed?

April 4, 2010

Op-Ed Contributor

By MICHAEL J. BURRY

Cupertino, Calif.

ALAN GREENSPAN, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”

But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen — with the expansion of easy mortgage lending — as high as they could go.

I had begun to worry about the housing market back in 2003, when lenders first resurrected interest-only mortgages, loosening their credit standards to generate a greater volume of loans. Throughout 2004, I had watched as these mortgages were offered to more and more subprime borrowers — those with the weakest credit. The lenders generally then sold these risky loans to Wall Street to be packaged into mortgage-backed securities, thus passing along most of the risk. Increasingly, lenders concerned themselves more with the quantity of mortgages they sold than with their quality.

Meanwhile, home buyers, convinced by recent history that real estate prices would always rise, readily signed onto whatever mortgage would get them the biggest house. The incentive for fraud was great: the F.B.I. reported that its mortgage fraud caseload increased fivefold from 2001 to 2004.

At the same time, I also watched how ratings agencies vouched for subprime mortgage-backed securities. To me, these agencies seemed not to be paying much attention.

By mid-2005, I had so much confidence in my analysis that I staked my reputation on it. That is, I purchased credit default swaps — a type of insurance — on billions of dollars worth of both subprime mortgage-backed securities and the bonds of many of the financial companies that would be devastated when the real estate bubble burst. As the value of the bonds fell, the value of the credit default swaps would rise. Our swaps covered many of the firms that failed or nearly failed, including the insurer American International Group and the mortgage lenders Fannie Mae and Freddie Mac.

I entered these trades carefully. Suspecting that my Wall Street counterparties might not be able or willing to pay up when the time came, I used six counterparties to minimize my exposure to any one of them. I also specifically avoided using Lehman Brothers and Bear Stearns as counterparties, as I viewed both to be mortally exposed to the crisis I foresaw.

What’s more, I demanded daily collateral settlement — if positions moved in our favor, I wanted cash posted to our account the next day. This was something I knew that Goldman Sachs and other derivatives dealers did not demand of AAA-rated A.I.G.

I believed that the collapse of the subprime mortgage market would ultimately lead to huge failures among the largest financial institutions. But at the time almost no one else thought these trades would work out in my favor.

During 2007, under constant pressure from my investors, I liquidated most of our credit default swaps at a substantial profit. By early 2008, I feared the effects of government intervention and exited all our remaining credit default positions — by auctioning them to the many Wall Street banks that were themselves by then desperate to buy protection against default. This was well in advance of the government bailouts. Because I had been operating in the face of strong opposition from both my investors and the Wall Street community, it took everything I had to see these trades through to completion. Disheartened on many fronts, I shut down Scion Capital in 2008.

Since then, I have often wondered why nobody in Washington showed any interest in hearing exactly how I arrived at my conclusions that the housing bubble would burst when it did and that it could cripple the big financial institutions. A week ago I learned the answer when Al Hunt of Bloomberg Television, who had read Michael Lewis’s book, “The Big Short,” which includes the story of my predictions, asked Mr. Greenspan directly. The former Fed chairman responded that my insights had been a “statistical illusion.” Perhaps, he suggested, I was just a supremely lucky flipper of coins.

Mr. Greenspan said that he sat through innumerable meetings at the Fed with crack economists, and not one of them warned of the problems that were to come. By Mr. Greenspan’s logic, anyone who might have foreseen the housing bubble would have been invited into the ivory tower, so if all those who were there did not hear it, then no one could have said it.

As a nation, we cannot afford to live with Mr. Greenspan’s way of thinking. The truth is, he should have seen what was coming and offered a sober, apolitical warning. Everyone would have listened; when he talked about the economy, the world hung on every single word.

Unfortunately, he did not give good advice. In February 2004, a few months before the Fed formally ended a remarkable streak of interest-rate cuts, Mr. Greenspan told Americans that they would be missing out if they failed to take advantage of cost-saving adjustable-rate mortgages. And he suggested to the banks that “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”

Within a year lenders made interest-only adjustable-rate mortgages readily available to subprime borrowers. And within 18 months lenders offered subprime borrowers so-called pay-option adjustable-rate mortgages, which allowed borrowers to make partial monthly payments and have the remainder added to the loan balance (much like payments on a credit card).

Observing these trends in April 2005, Mr. Greenspan trumpeted the expansion of the subprime mortgage market. “Where once more-marginal applicants would simply have been denied credit,” he said, “lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.”

Yet the tide was about to turn. By December 2005, subprime mortgages that had been issued just six months earlier were already showing atypically high delinquency rates. (It’s worth noting that even though most of these mortgages had a low two-year teaser rate, the borrowers still had early difficulty making payments.)

The market for subprime mortgages and the derivatives thereof would not begin its spectacular collapse until roughly two years after Mr. Greenspan’s speech. But the signs were all there in 2005, when a bursting of the bubble would have had far less dire consequences, and when the government could have acted to minimize the fallout.

Instead, our leaders in Washington either willfully or ignorantly aided and abetted the bubble. And even when the full extent of the financial crisis became painfully clear early in 2007, the Federal Reserve chairman, the Treasury secretary, the president and senior members of Congress repeatedly underestimated the severity of the problem, ultimately leaving themselves with only one policy tool — the epic and unfair taxpayer-financed bailouts. Now, in exchange for that extra year or two of consumer bliss we all enjoyed, our children and our children’s children will suffer terrible financial consequences.

It did not have to be this way. And at this point there is no reason to reflexively dismiss the analysis of those who foresaw the crisis. Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat. If the mistakes were properly outlined, that might both inform Congress’s efforts to improve financial regulation and help keep future Fed chairmen from making the same errors again.

Michael J. Burry ran the hedge fund Scion Capital from 2000 until 2008.