Post by unlawflcombatnt on Jun 11, 2007 13:50:38 GMT -6
Below are excerpts from an article written by Greg Ip in the Wall Street Journal describing how Alan Greedspan contributed to the subprime mortgage meltdown, and how he knowingly refused to take action that may have prevented the subprime meltdown, and even the housing bubble itself. At the least, Greedspan could have greatly reduced the size of the housing bubble, and the damage it will ultimately cause to the economy.
Did Greenspan Add to Subprime Woes?
"Gramlich Says Ex-Colleague Blocked Crackdown
On Predatory Lenders Despite Growing Concerns
Alan Greenspan was arguably the country's most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan's regulatory record has received far less scrutiny than his management of the economy.
That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed's broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.
Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.
"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.
"He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.
Greenspan's Response
Mr. Greenspan, in an interview, says he doesn't recall a specific discussion of the idea but confirmed his opposition to it...
"For us to go in and audit how they act on their mortgage applications would have been a huge effort, and it's not clear to me we would have found anything that would have been worthwhile without undermining the desired availability of subprime credits."...
On June 29, the Urban Institute will release a book by Mr. Gramlich, "Subprime Mortgages: America's Latest Boom and Bust." It argues, among other points, that all lenders affiliated with banks and thrifts could "be brought under the same supervisory conventions as their parents seemingly without major culture shock." It wouldn't be a huge undertaking by policy makers, and it would lead to more uniform, stringent practices.
Mr. Gramlich.... his remarks represent a rare insider's criticism of Mr. Greenspan's regulatory record. Mr. Greenspan says he didn't get heavily involved in regulatory matters in part because his laissez-faire philosophy was often at odds with the goals of the laws Congress had tasked the Fed with enforcing....
Still, Mr. Greenspan's views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny...."
The full article can be found at the Wall Street Journal under
Did Greenspan Add to Subprime Woes?
The majority of the article can also be found at Nouriel Roubini's site.
Did Greenspan Add to Subprime Woes?
"Gramlich Says Ex-Colleague Blocked Crackdown
On Predatory Lenders Despite Growing Concerns
Alan Greenspan was arguably the country's most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan's regulatory record has received far less scrutiny than his management of the economy.
That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed's broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.
Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.
"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.
"He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.
Greenspan's Response
Mr. Greenspan, in an interview, says he doesn't recall a specific discussion of the idea but confirmed his opposition to it...
"For us to go in and audit how they act on their mortgage applications would have been a huge effort, and it's not clear to me we would have found anything that would have been worthwhile without undermining the desired availability of subprime credits."...
On June 29, the Urban Institute will release a book by Mr. Gramlich, "Subprime Mortgages: America's Latest Boom and Bust." It argues, among other points, that all lenders affiliated with banks and thrifts could "be brought under the same supervisory conventions as their parents seemingly without major culture shock." It wouldn't be a huge undertaking by policy makers, and it would lead to more uniform, stringent practices.
Mr. Gramlich.... his remarks represent a rare insider's criticism of Mr. Greenspan's regulatory record. Mr. Greenspan says he didn't get heavily involved in regulatory matters in part because his laissez-faire philosophy was often at odds with the goals of the laws Congress had tasked the Fed with enforcing....
Still, Mr. Greenspan's views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny...."
The full article can be found at the Wall Street Journal under
Did Greenspan Add to Subprime Woes?
The majority of the article can also be found at Nouriel Roubini's site.