That's the multi-billion dollar question and, if you believe statements made by the late Fed Governor Edward Gramlich, it didn't and that's because Alan Greenspan opposed any action. Gramlich served on the Fed board from 1997 to 2005.
Gramlich said earlier this year that in 2000 he wanted the Fed to use its authority to send examiners to audit consumer-finance lenders and look at the growing problem of predatory lending. Then chairman Alan Greenspan opposed the move. Greenspan has confirmed Gramlich's statements on this issue. Gramlich thought this new breed of lenders were "luring many people into risky mortgages they could not afford," according to a story in the New York Times.
Gramlich wasn't the only one who warned about the problem with subprime lenders. Sheila Bair, who is now Chairman of the FDIC, warned about the problem in 2001 when she was a senior Treasury official. She wanted subprime lenders to adopt a code of "best practices," but was rebuffed by the industry. While I've seen no evidence in writing that she spoke with the Fed board at the time, I'd bet she did make them aware of her efforts. Today Bair is leading the cause in the Bush Administration to help people hurt by these predatory lending practices and encouraging mortgage interest rates on these subprime loans to be frozen for at least five to seven years.
In addition to these folks inside the government, leaders of advocacy groups also tried to get Greenspan to act, on the issue of deceptive lending practices. The New York Times talks about a 2004 meeting with Greenspan on this issue. Robert Gnaizda of the Greenlining Institute said they implored Greenspan to use his bully pulpit and press for a voluntary code of conduct. The Times quoted him as saying, "He never gave us a good reason, but he didn't want to do it."
As the evidence mounts against the Fed and shows their inaction, it's no surprise to learn that Congress may be ready to take responsibility for consumer banking rules away from the Fed or at the very least give power to someone else to also make the rules.
Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to the Federal Reserve."
Oil hits record $127.43 on supply concerns, raised Goldman forecast
Icahn's 'shock and awe' on Yahoo -- a gutsy play
Housing starts surprisingly rise in April on apartment construction
Reader Comments (Page 1 of 1)
12-19-2007 @ 10:54AM
DaleF said...
If not for the housing boom Bush wouldn't have had any economic record at all. Did the Fed and Greenspan come under political pressure from this white house? Crony capitalism is widespread and serves to benefit republican financial supporters, where political connections count for more than competance. Additionally,there hasn't been a government agency not corrupted by the taint of the republican political agenda. After all the Bush administration was supposed to be on duty, where were they? Did they not have Greenspan's phone number or was it a case where Bush handlers needed 'good news' to shore up Bush's popularity? If not for housing and government hiring this country's unemployment would be double or more.