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.