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.