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”.