"'It’s embarrassing for the Fed,' said Justin Wolfers, an economics professor at the University of Pennsylvania. 'You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.'"
--snip--
"The general consensus on the board, summarized by Mr. Geithner, was that problems in the housing market had few broader ramifications. 'We just don’t see troubling signs yet of collateral damage, and we are not expecting much,' he said at the September meeting."
"Mr. Bernanke initially agreed, telling colleagues at his first meeting as chairman, in March, 'I think we are unlikely to see growth being derailed by the housing market.'"
"As the year rolled along, however, Mr. Bernanke increasingly took the view that his colleagues were too sanguine."
"'I don’t have quite as much confidence as some people around the table that there will be no spillover effect,' he said."
All these economists seem blissfully unaware of what was feeding the housing bubble - subprime loans mandated from executive branch initiatives that started under Clinton and Cuomo.
“All these economists seem blissfully unaware of what was feeding the housing bubble - subprime loans mandated from executive branch initiatives that started under Clinton and Cuomo.”
That’s the meme around here. Unfortunately for that theory the huge participation of Wall Street investment banks and pure mortgage lenders was done entirely without government pressure.
The initiatives such as the CRA applied to deposit-takers like your local bank. Wall Street gets its capital from investors, not depositors, and was not mandated to do anything.
The world of subprime lending was consciously targeted for development by Wall Street because it offered high yielding paper, and no one had mined that market prior to 2000. The fact that developing the subprime market paralleled the mandates to depository institutions is an interesting historical irony but that’s all that it is.