I’ve always been peeved at the way the press and the elites have revered Alan Greenspan–even as he screwed average people time after time. But, I guess that’s the definition of being an elite–you don’t really care about the damage done to regular people. This would be a good time to go back and read Bill Greider’s terrific book "Secrets of The Temple" which documents in great detail the inner workings of the Federal Reserve.
I bring this up today because there is a must-read, front-page article by Edmund Andrews in The New York Times on the failure of the Fed to act to blunt what was an obvious disaster waiting to happen:
Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.
Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.
But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.
And…
And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.
John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.
“He never gave us a good reason, but he didn’t want to do it,” Mr. Gnaizda said last week. “He just wasn’t interested.”
Today, as the mortgage crisis of 2007 worsens and threatens to tip the economy into a recession, many are asking: where was Washington?
Could the Fed have done something?
Had officials bothered to look, frightening clues of the coming crisis were available. The Center for Responsible Lending, a nonprofit group based in North Carolina, analyzed records from across the country and found that default rates on subprime loans soared to 20 percent in cities where home prices stopped rising or started to fall.
“The Federal Reserve could have stopped this problem dead in its tracks,” said Martin Eakes, chief executive of the center. “If the Fed had done its job, we would not have had the abusive lending and we would not have a foreclosure crisis in virtually every community across America.”
Why didn’t this happen? Really, greed and the faith in the almighty "free market." Greenspan, like other elites, delight in watching people rack up huge profits and churn business activity. It makes the elites feel that the "economy" is alive.
Now, Greenspan is feeling defensive, granting an interview to Andrews in which he defended his record and says the Fed couldn’t do much.
Mr. Greenspan and other Fed officials repeatedly dismissed warnings about a speculative bubble in housing prices. In December 2004, the New York Fed issued a report bluntly declaring that “no bubble exists.” Mr. Greenspan predicted several times — incorrectly, it turned out — that housing declines would be local but almost certainly not nationwide.
Basically, Greenspan failed when it came to protecting millions of people. And, now, the financial system is quite vulnerable to a recession–which will hit regular people hard. Not that Greenspan will suffer–he continues to rake in six-figure fees for speeches in which he dispenses his wisdom and forecasting about the economy. Why would anyone pay to hear that, given his track record?
