Posted on 12/21/2009 9:47:24 AM PST by Lorianne
Foreclosures already pocked Chicago's poorer neighborhoods but the downtown still was booming as the Federal Reserve Bank of Chicago convened its annual conference in May 2007.
The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.
Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.
"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.
Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.
(Excerpt) Read more at washingtonpost.com ...
"HEROIC ARSONIST PUTS OUT OWN FIRE"
I bet the FED wishes it had never heard of CRA 1977
This article is getting closer to the actual truth about the crisis. The Fed had a regulatory role, and they completely failed to exercise reasonable caution and diligence in making estimates of the soundness of the financial sector.
This is why the Fed should be audited, if not simply shut down and replaced with a computer with simple formula-based algo’s for calling out interest rates and money supply numbers.
Conservatives who keep pointing to the CRA as the “cause” of this meltdown need to realize that they’re being ultimately foolish in doing so. Pointing at the CRA as the cause of this implosion is like blaming rain for why a ship is sinking when said ship has taken a half-dozen torpedo hits below the waterline. The CRA has some small effect on bank portfolios, yes, but to focus on the CRA is simply ignoring the huge elephant in the room: the Fed.
Yep - the Boston Fed pushed for loser mortgage lending standards back in the late Nineties, as just one example.
That’s an excellent example.
Another is how the Fed-engineered LTCM bailout put in place the idea of a “Greenspan put” in Wall Street lingo - which helped create an environment of absurd devaluation of risk.
The Fed has a LOT to answer for, and conservatives should focus like a laser on the banking sector and the Fed, especially coming into this election year. This is a big turning point in history, and there are ample opportunities to make big points that resonate with voters - all of which the GOP is squandering.
Sadly, from what I see of the GOP in DC - the vast majority of the GOP is utterly clueless about the real causes of this melt-down, have few ideas on how to fix it and are continuing to adhere to illogical pet ideas of how the economy works. Most of the GOP have no ideas how the markets actually work. They have no idea what a “dark pool” is, nor what “algorithmic trading” is, nor what a derivative really is, or the difference between a “over-the-counter” derivative vs. an exchange-traded derivative.
Most of the GOP would probably still agree with nonsense like the Efficient Market Hypothesis - if they even knew what it was.
The most frustrating thing for me right now is that DC contains two political parties on finance: the bought-n-paid for party (the DNC) and the “party of retards,” ie, the GOP.
For example, the GOP likes to yammer about “Free markets.” This is such outright twaddle that it isn’t funny. When you have an institution such as the Fed inflating bubbles (and they’re inflating another one even now), there is no “free market.” The reason why we got here is that there are no free markets. China pegs the yuan and craters our trade deficit, and the Fed inflates huge bubbles - twice in 10 years now.
Yet the GOP likes to recite such twaddle while they buck back against re-regulation of the banking sector, even as it is proven time and time and time again that the banking sector is NO friend of conservatives or the GOP. The GOP carrying “free market” water for the banking sector gets us little in the way of positive results and a lot of bad PR. Most people think that the grifters, thieves and financial perverts on Wall Street are Republicans. This idea is cemented into most people’s minds. It takes me an hour of laying out piece after piece of documented evidence to get people to understand that Wall Street gives in the majority to the DNC, and that outfits like Goldman are huge contributors to Obama.
If the GOP were smart, they’d study the actions of Andrew Jackson against the banking sector in his day. But they’re not. They’re seized with bumper-sticker mentality of “free markets” that can be recited ad nauseum by such ratchet-jawed purveyors of monkey drool like Sean Hannity.
This is why, even in a year when the DNC is going to be loathed by voters, I have very low hopes for the GOP. They’re just too stupid for our own good.
This is not a crisis caused by one particular type of loan or debt... it was caused by a tsunami of ALL types of debt... mortgages, home equity, consumer credit, credit card, auto loans, municipal debt, corporate debt and on and on.
ANY loan that was taken out when the market was grossly over-valued is a bad loan, whether it is prime, alt-a, subprime or whatever.
Subprime was simply the first link to break in an extraordinarily over-stretched chain of debt.
Alt-A option arm loans are now defaulting at the same rate or at an even higher rate than subprime... Prime loans are not far behind... we’ve only seen the tip of the iceberg in prime foreclosures.
Americans owe almost 14 Trillion dollars just in home mortgage and consumer related debt, (on assets that are very likely worth less than we paid for them)!
What’s worse, we do not pay the low, low interest rates on our debt that the gov’t pays on its debt.
1 Trillion (just ONE) is $1 per second for 32,000 years, and that’s without interest!
The average debt ratio for an American family is now 130%... and unemployment is going to continue to climb and will probably stay high for year to come (especially if Obama gets his way on healthcare, cap and trade, card check, etc.)
Until we realize the scope of this debt crisis, we are not going to be able to deal with it... assuming there is any way to deal with it at all... it is exponentially bigger than people realize.
Source: U.S. Census bureau.
Home mortgage debt: http://www.census.gov/compendia/statab/2010/tables/10s1155.pdf
Consumer credit debt:
http://www.census.gov/compendia/statab/2010/tables/10s1153.pdf
I agree with you.
Much, much worse than peopel realize.
However, when you try to talk with people about it they will not listen. Most people are in 100% denial mode.
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