I confess, I was planning to have some fun at Alan Greenspan's expense today, operating under the assumption that his testimony before the House Oversight and Government Reform Committee would provide some delicious sparks as he defended his record as Federal Reserve Chairman.

But it would be too easy to mock his pronouncement that he is in "a state of shocked disbelief" at the advent of a "once-in-a-century credit tsunami" and the extent of a financial crisis that "has turned out to be much broader than anything I could have imagined."

In fact, it doesn't even seem like fun to rip apart his warning that the markets are already self-correcting in the wake of the last 18 months of disasters.

[Today's markets] for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime. The financial landscape that will greet the end of the crisis will be far different from the one that entered it little more than a year ago. Investors chastened will be exceptionally cautious.

Hey, if takes a global economic meltdown to chasten reckless investors, that's not too big a price to pay, right?

But like I said: Child's play. Boring.

The truth is, Alan Greenspan made a very important point in his initial testimony that bears repeating. The blame for the credit crisis belongs to Wall Street.

The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originizations, undeniably the original source of the crisis, would have been far smaller and defaults accordingly far fewer. But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world.

Italics mine.

That's right. Alan Greenspan went before Congress and did not, at least in his initial statement, blame Fannie Mae or Freddie Mac or the Community Reinvestment Act or stupid homeowners or fraudulent lenders for the subprime meltdown and the ensuing credit crisis. He blamed the demand for risk from both the banks who would repackage the dodgy loans as exotic securities and the investors whose taste for these hotcakes could not be satisfied.

The private sector created the incentive to make bad loans. The private sector, despite its vaunted reliance on a "vast risk management and pricing system [that] has evolved combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology," failed to properly judge the risk inherent in those securities. The private sector, voracious for high-yielding risk, and unmindful of history, steered the global economic right off the tracks.

Alan Greenspan said it. It must be true.