September 27, 2009
I said this before: “The more we learn, the worse it gets”. The Washington Post published an article today that just makes your blood curl. The Federal Reserve, acting under, or rather adhering to, a law that was quietly passed in 1998 ignored dozens of complaints about sub-prime lenders. The writer of the article referred to it as a “hands-off” policy, saying it created a double standard. The fed, under Alan Greenspan, was supposed to scrutinize banks, which they failed to do, but due to a policy of their own making, did not police sub-prime lenders, usually a subsidiary of banks.
The article, As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t bother Barking, covers a lot of information. Instead of making further comments on it, I have simply included various excerpts from the lengthy article. The writer, Binyamin Appelbaum, tells us this is the first of a series about the record of the Federal Reserve.
“….large banking companies including Wells Fargo and Citigroup had created subprime businesses wholly focused on making loans at high interest rates, largely in the black and Hispanic neighborhoods to the south and west of downtown Chicago.”
“Under a policy quietly formalized in 1998, the Fed refused to police lenders’ compliance with federal laws protecting borrowers, despite repeated urging by consumer advocates across the country and even by other government agencies.”
“Under the policy, the Fed did not even investigate consumer complaints against the affiliates.”
“Acting on a recommendation from four Fed staffers including representatives of the Philadelphia, St. Louis and Kansas City regional reserve banks, the Fed’s Board of Governors unanimously decided to formalize a long-standing practice, ‘to not conduct consumer compliance examinations of, nor to investigate consumer complaints regarding, nonbank subsidiaries of bank holding companies’.”
“Alan Greenspan, then chairman of the Fed, recalled that [Fed Governor Edward M.] Gramlich broached the [predatory lending] subject at a private meeting in 2000. Greenspan said that he disagreed with Gramlich, telling him that such inspections would require a vast effort with no certainty of results, and that the Fed’s involvement might give borrowers a false sense of security.”
“After the Fed’s decision, several of the largest bank holding companies added finance arms, expanding into the regulatory vacuum.”
“By 2004, the consumer finance industry had largely been folded into the banking industry.”
“The Fed found that some practices had continued in violation of that commitment, and that [Citigroup] employees had misled regulators.”
“The Fed’s reluctance was part of a broad governmental retreat from oversight of the financial industry. Greenspan and many politicians in both parties saw regulation as a blunt instrument that often deprived more people than it protected.”
“Congress now is weighing whether the Fed should be fired. The Obama administration has proposed shifting consumer protection duties away from the Fed and other banking regulators and into a new watchdog agency. That proposal, a central plank in the administration’s plan to overhaul financial regulation, is opposed by the industry and faces a battle on Capitol Hill.”
And to think millions of us commoners are still supporting those Wall Street protectors who are saying the Obama administration is trying to turn our financial industry into socialist institutions with regulatory reform. Well here’s a wake up call for you — preventing criminals from robbing our storage depots is NOT socialism!
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