The Fed's role in regulating subprime lending--or not--continues to draw comment. Boston Globe cartoonist Dan Wasserman's take on the Fed's proposed regulations is on the right. Times columnist Paul Krugman's withering column on the Fed's failures to regulate can be found here. Krugman refers to the Fed's proposal as "the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry." He adds:
With millions more foreclosures likely, it’s a good bet that homeownership will be lower at the Bush administration’s end than it was at the start.
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So where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.
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In a 1963 essay for [Ayn] Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”
It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen.
I'm not sure Mr. Greenspan still holds by what he wrote in 1963, especially since he recently said in an interview that the government should help homeowners facing foreclosure by giving them direct financial assistance (an account is here) but it's still interesting. Krugman also discusses how federal regulators have preempted state attempts to stop predatory lending.




