A truism of crisis management is that most seemingly out-of-the-blue disasters could have been prevented if someone had paid attention.
An article in The Times on Tuesday by Edmund L. Andrews leaves no doubt that the twin crises of the subprime lending mess ”” mass foreclosures at one end of the economic scale and a credit squeeze afflicting the financial system ”” are rooted in the willful failure of federal regulators to heed numerous warnings.
The Federal Reserve is especially blameworthy. Starting as early as 2000, former Fed Chairman Alan Greenspan brushed aside warnings from another Fed governor, Edward M. Gramlich, about subprime lenders who were luring borrowers into risky loans. Mr. Greenspan’s insistence, to this day, that the Fed did not have the power to rein in such lending is nonsense.
In 1994, Congress passed a law requiring the Fed to regulate all mortgage lending. The language is crystal clear: the Fed “by regulation or order, shall prohibit acts or practices in connection with A) mortgage loans that the board finds to be unfair, deceptive, or designed to evade the provisions of this section; and B) refinancing of mortgage loans that the board finds to be associated with abusive lending practices, or that are otherwise not in the interest of the borrower.”
When the mortgage banks raise their lending standards, you can be sure the NY Times will weigh in on “discriminatory lending” and “denying the American dream to the nation’s working poor.”