fed: Another Federal Reserve Governor’s mea culpa

This time it’s Sue Bies:  “I realize, and I think some of the other folks realize, that we probably raised rates too slowly.”


Bies said the bigger problem was lenders granting mortgages to people without the means to repay the loans. That concern fell to Bies, since she was the Fed’s point person for bank oversight.

“As regulators, we didn’t see the whole picture of how poorly the loans were being underwritten, because there’s so many regulators in this country. None of us saw the whole picture, and we didn’t tighten down enough, fast enough on it,” Bies said.

In addition, she said, there was pressure from Congress, which oversees the Fed.

“When you tighten (mortgage) standards, it tends to be the people with the lower discretionary income, lower credit scores, who tend to be denied housing. And if you’ve got people in Congress who really feel everybody ought to get a mortgage, period, then tightening those standards, they really feel you’re not allowing people to own a home,” she said.

Even if it had made them tighter, the Fed didn’t have the authority to enforce mortgage-lending standards, Bies said. Plus, she said, a lot of the problems came from small mortgage brokers, which the Fed doesn’t regulate.

“I think everybody just really lost touch with how much the underwriting of loans had deteriorated,” Bies said.

Bies said she feels “accountable” for the collapse. However, she does not feel guilty, she said, because when she looks back on it, there wasn’t any information that would have prompted her to act differently.

But read also this.

Got to love it when an official in charge of controlling prices and regulations in the market for money / credit admits the successful execution of her job was undoable as a result of a knowledge problem.  A Hayekian can’t help but respond,  “You don’t say”.

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One Response to fed: Another Federal Reserve Governor’s mea culpa

  1. Steven Bray says:

    Unfortunately, even if the Fed had been able to regulate mortgage brokers, it would have made little difference. Mortgage brokers didn’t underwrite the loans, didn’t create the funny loan programs. They simply offered them to consumers and prepared the loan packages for the lenders. It was lenders who approved all these loans – in many cases for people who really couldn’t afford them. In fact, the lenders themselves originated many of these loans. The problem with loan standards has nothing to do with the originator (whether a broker or banker). The problem is with the lender that created the loan programs and underwrote the loans and the investor class that package and sold them as gold.

    Don’t get me wrong, there are bad mortgage brokers just as there as bad lawyers, bad doctors, and (certainly) bad politicians. Some of their dishonest practices included counseling people to misstate their incomes or steering people into higher cost loans for profit. It’s unfortunate that these consumers didn’t shop around for more reputable brokers. The vast majority of brokers are aghast at the behavior of the few.

    Finally, let me say that despite what passes for journalism, mortgage brokers are strongly regulated in many states – much more so than the bankers that seem to be getting a free pass in the press. In Texas, it takes 90 hours of specialized education to gain a mortgage broker’s license. We have a slew of oversight and record keeping regulations with which to contend. It’s not easy, and it is expensive. At the federal level, we are the only originators required to disclose all of our fees and income. Unfortunately, we’re also the poorest (maybe because we’re the only ones who have to disclose all our income), and we don’t have the resources to lobby the way the big banks do. As we all know, money is what matters in Washington.

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