Tag Archives: federal reserve

Government Conspiracy Theory Blames Hybrid Mortgages for Depression

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Tom di Lorenzo at Lew Rockwell blog has this:

“Following Alan Greenspan’s pathetic “don’t blame me” speeches and books, various Fed branches have parroted his view that the Greenspan Depression we are in was caused by thrifty Orientals whose savings drove down interest rates.  So imagine my surprise upon receiving a hard copy of a Dallas Fed publicaton entitled “Taming the Credit Cycle by Limiting High-Risk Lending” and reading that “The present troubles emerged to a large extent from the growing use of hybrid adjustable-rate mortgages . . .”   Huh?  What happened to The New Yellow Peril?

There is no mention at all — not one word — of the role of Fed monetary policy in creating the housing bubble. The culprits, say these self-serving excuse makers (the author is Jeffrey W. Gunther), are “lightly regulated institutions” that are in need of the Fed’s “disciplining force.”

My Conment

Mr. di Lorenzo can relax –  this new tack does nothing to exonerate Greenspan. Look at this USA Today piece from early 2004, when housing was already showing bubbl-y tendencies:

“He [Greenspan] said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan said.”

Read through the whole piece and it’s  clear that American house buyers actually “preferred the stability” of the traditional fixed rate mortgages. In other words, it was only a concerted PR effort by Greenspan & Co. that changed people’s tastes in this.

Let that put an end to any moralizing of this issue.  Yes – rampant consumerism and debt binging exacerbated the problem. But the problem wasn’t caused by some moral defect in American consumers. It was caused by policies deliberately pushed by the federal government in the hope that the consumer would succumb. The chairman of the Federal Reserve thus acted no differently from any confidence man or grifter who spots a mark (a naive, uninformed person easy to manipulate), then sets about winning the mark’s confidence before baiting the trap….

You can see the chairman’s own words to the national association of credit unions on February 23, 2004. (Skip down to the last 2-3 paragraphs to catch the gist)

And now, just like any con man, the Fed chairman too blames his victims.

They had it coming to them...


Legislation to Oversee Fed Watered Down

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Ryan Grim at Huffington Post has a piece about the watering-down of legislation intended to give Congress greater oversight over the Federal Reserve.

He writes –

“On page five of Grassley’s amendment, he intends to give the Comptroller General of the Government Accountability Office power to audit “any action taken by the Board under…the third undesignated paragraph of section 13 of the Federal Reserve Act” — which would be almost everything that it has done on an emergency basis to address the financial crisis, encompassing its massive expansion of opaque buying and lending.

Handwritten into the margins, however, is the amendment that watered it down: “with respect to a single and specific partnership or corporation.” With that qualification, the Senate severely limited the scope of the oversight.

On the Senate floor, Grassley named the top Republican on the banking committee, Richard Shelby of Alabama, as the man pouring the water.”

In case you haven’t been keeping up, the Fed’s been lent much more than the $700 billion odd money of the original bail-out.  By January 2009, the figure had exceeded $2 trillion, as this video on the oversight problem indicates. Note that the number is now at least $3 trillion plus, according to the Special Inspector-General’s Report on TARP (SIGTARP).

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My Comment

The HuffPo piece is just more confirmation of systemic rot, as delineated in this belated but useful Wall Street Journal report on the selling-out of America by Wall Street and Washington.

I only skimmed the report, but I notice that it seems to be blaming the whole mess on deregulation, pinpointing the late 1990s (and onward) as the culmination of  bad practices arising from what it calls without irony the “prevailing laissez-faire ideology of the Bush administration” – this, about the most interventionist administration in modern American history.  I like to take a nuanced position on regulation but this sticks in my craw.

Sounds like someone’s hustling the plebes away from the scene of the crime, clapping both hands over their eyes, just in case one of ’em catches a glimpse of the plates on the back of the get-away car –  FED1917*

For the WSJ it’s all about the late 1980s. It has nothing – repeat, nothing –  whatsoever to do with pre-New Deal policies…… nothing, I tell you.

No one’s defending junk-bond kings here, but that sounds a bit loaded to me.

Why am I getting the feeling that for a cynic the fun only begins now…

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* i.e. the creation of the Federal Reserve itself