September 27, 2009
The Big Picture Boys

A shocking story in today’s Washington Post confirms what has seemed probable all along: the subprime housing scams that sank our economy were a vast criminal enterprise that Alan Greenspan not only knew about from the start, but actively encouraged.

Read it all, but here’s a brief excerpt that goes to the underlying problem with the anti-Keynsian Chicago school of economics — what Paul Krugman calls the “freshwater school.” This is a failure to see that the big picture is made up of millions of tiny dots. In laymen’s terms, these are known as “human beings.”

Throughout the lending boom, consumer advocates trooped regularly to the Fed’s monumental marble headquarters on Constitution Avenue to offer specific accounts of abuses in financial transactions. But what seemed powerful to advocates often was dismissed as anecdotal by regulators.

“The response we were getting from most of the governors and the staff was, ‘All you’re able to do is point to the stories of individual consumers, you’re not able to show the macroeconomic effect,’ “ said Patricia McCoy, a law professor at the University of Connecticut who served on the Fed’s consumer advisory council from 2002 to 2004. “That is a classic Fed mindset. If you cannot prove that it is a broad-based problem that threatens systemic consequences, then you will be dismissed.”

Fortunately those dark days at the Fed are past. President Obama’s choice to continue as its chairman, Ben S. Bernanke, is outraged:

Bernanke asked the Fed’s lawyers to revisit their concerns and, in July 2007, the Fed announced a pilot program to examine a few subprime affiliates.This summer, pronouncing itself satisfied with the results, the Fed announced it would launch regular consumer compliance examinations.

“In looking at our responsibility to enforce these consumer laws we believe a somewhat more proactive stance is justified,” Bernanke told Congress.



Posted by Jerome Doolittle at September 27, 2009 11:08 AM
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The problem should be privatized. [You heard that from me? GEZADS!!]

Not only have Federal Regulators enforcing violations, but create legislation to allow lawyers into the fray. Limit fees to something reasonable, make violations relatively expensive, 5 or ten thousand per violation, add some regulations that I'm too lazy to sit here and enumerate while commenting and you could have something with a little teeth like the Fair Debt Collections Practices Act (which needs to have that paltry $1000 per violation number substantially increased). That's the kind of privatization that works.

Posted by: Buck on September 27, 2009 2:57 PM

One other note:
The vultures are still around. As quickly as someone tries to stamp them out, they rear their ugly heads:

Posted by: Buck on September 27, 2009 4:15 PM
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