"Least sophisticated borrowers" shagged, Fed shrugged

Alan Greenspan's propensity to shy away from actually trying to regulate anything while serving as head of the Central Bank has been spotlighted in the NYT's article, Fed Shrugged as Subprime Crisis Spread. The article provides facts and deep background to Guambat's spew at Greenspan's Putzpa.

It turns out there were many warnings and attempts to enlist the Central Bank Chairman to use his regulatory powers to derail or diminish the so-called subprime problems well before they reached critical mass.

In 2000, Mr. Gramlich [Edward M. Gramlich, a Federal Reserve governor] privately urged the Fed chairman to send examiners into the mortgage-lending affiliates of nationally chartered banks.

Mr. Greenspan argued that the Fed was ill-suited to investigate deceptive lending practices.

“I got the impression that there were a lot of very questionable practices going on,” he said. “The problem has always been, what basically does the law mean when it says deceptive and unfair practices?"

“It becomes essentially an enforcement action, and the question is, who are the best enforcers?”

The Fed was hardly alone in not pressing to clean up the mortgage industry. When states like Georgia and North Carolina started to pass tougher laws against abusive lending practices, the Office of the Comptroller of the Currency successfully prohibited them from investigating local subsidiaries of nationally chartered banks.

But the regulators were also fragmented among an alphabet soup of agencies with splintered and confusing jurisdictions.

And so the band played on and Greenspan fiddled while homes burned.

Barry Ritholtz noted the allusion to Ayn Rand's followers in the NYT's article's title.