Economic Reality

[nathanm]

Hmmm, Democrats swept the house in Nov. of 2006 which means Barney Frank became the chair of the House Banking Committee and could have put the brakes on at any time.  Even as a ranking member of the minority and long-term member of the banking committee, he could have blown the whistle at any time prior to Jan. 2007. 

Complicit or complacent in his duties and completely ignorant?

http://democrats.financialservices.house.gov/press110/press021607.shtml

http://democrats.financialservices.house.gov/press110/press030907.shtml

http://democrats.financialservices.house.gov/press110/press033007.shtml

By the way, the subprime bubble began its bust in 2007. Nobody paid much attention until the freeze-up of the commercial credit markets in the wake of the failures of the investment banks. (they all failed..note that there now are none, they're all commercial banks)

The larger problem, as discussed ad nauseum on Planet Money a year or two back when they still had Toxie around, was that the OCC, OTS, and FDIC under Bush refused to use the existing regulatory powers they possessed.

[Conan71]

There's a couple of real hall of flamers, Barney & Maxine.  I forgot she served on that committee.  Explains a few things.

"Finally, in crafting this clarification, we ask that the federal and state regulators continue to work together to make certain that the guidance not artificially restrict the availability of credit to underserved markets and that it applies - to the extent possible- to all mortgage originators (regardless ofwhether they are state-chartered, nationally- chartered banks or mortgage companies)."

IOW- keep making loans to low income borrowers who might not be able to afford the payment.

The letters I'm reading are simply saying: "Provide more clarification and guidance."  

Reading further, they pulled the same smile Washington has pulled for decades.  Instead of doing an overhaul of an existing department, getting rid of dead wood, and simply instituting new and tougher policies via an existing agency they simply create yet another bureaucracy supposedly charged with tougher regulations.  How long does it take to set up a new department or commission and get it functioning like it should.  They pulled the same smile with the safe food act and many other acts.  It's window dressing.  Spend more money for another duplicated mission while we create yet another multi month or multi year delay in actually toughening regulations.

[nathanm]

Underserved does not equal subprime. And as I posted earlier, subprime originations during the bubble were mostly in private institutions and most of that lending was done prior to 2007.

You can pull quote if you like, but the fact of the matter is that their (stated) main concern was the rampantly obvious pushing of predatory forms of lending on unsuspecting and/or unsophisticated borrowers while not restricting lending to nominally subprime borrowers who do in fact have the income/employment history to justify being lent lots of money. (a lot of people become 'subprime' when they can't pay their medical bills and aren't aware that they can get medical collections completely cleansed from their credit report after they're paid)

On this, I don't think there's a lot of reasonable criticism to be made. If you want to criticize, there's plenty of room over the financial regulation reform bill. The non-transparent CDS market will bite us in the donkey once again when Greece defaults. IMO, CDS should be regulated as insurance and only available as a bona fide hedge. This BS about people buying naked CDS contracts is a large part of what made the financial crisis so systemic. It increased the losses without any possible upside. Especially where certain hedge funds paid certain banks to pool the mortgages in a certain way so that they could get sure money out of AIG and others writing CDS contracts.

One thing was made crystal clear by all this: The market cannot, as the Bush Administration claimed, be relied upon to self-regulate. Left to its own devices, we get rampant fraud and calls for bailouts to save us from a financial panic.

Also, at some point, when it's clear that existing regulatory agencies either lack the culture or the expertise to work within a stricter regulatory framework or they simply don't have the perspective necessary because of their close cooperation with industry (I argue OTS and OCC are in this boat), a new agency hopefully not beholden to those they regulate may in fact be appropriate. How tough can you be on banks when the banks are the ones funding your agency, after all?

[guido911]

This guy gets it.

[nathanm]

Well he might get it if he actually read Ryan's budget. Or checked the numbers therein. Or read the deconstructions of it that are easily accessible on the internets. (And which come from the entirety of the political spectrum) Then perhaps he wouldn't be so confused by the opposition to it.

[Gaspar]

Well he might get it if he actually read Ryan's budget. Or checked the numbers therein. Or read the deconstructions of it that are easily accessible on the internets. (And which come from the entirety of the political spectrum) Then perhaps he wouldn't be so confused by the opposition to it.

[nathanm]

[Gaspar]

President Obama is #WINNING

http://www.cnbc.com/id/43534613

[we vs us]

President Obama is #WINNING

http://www.cnbc.com/id/43534613

It's interesting that the article doesn't mention Obama or the uncertainty amongst the business community as being behind the tepid recovery.  Instead, it talks about Rogoff's observation that recovery from a debt bubble is usually far longer than a standard recession, and that consumer demand is dry dry dry. 

I'd say the uncertainty is on the part of the consumer, not business.