Topic: Monetary Policy
Bernanke Blames Mortgage Lenders For Federal Reserve's Own Irresponsible Activities Fed Chairman Ben Bernanke used a time-honored method for evading responsibility by blaming mortgage lenders for the current financial crisis.by Walt Thiessen
(libertarian)
Friday, March 14, 2008
According to the Associated Press, Federal Reserve Chairman Ben Bernanke is blaming the mortgage industry for the way they loaned out money during the recent, Fed-induced real estate boom. In doing so, he blames others for his own failings.
The AP quotes Bernanke saying, "Far too much of the lending in recent years was neither responsible nor prudent. The terms of some subprime mortgages permitted homebuyers and investors to purchase properties beyond their means, often with little or no equity. In addition, abusive, unfair or deceptive lending practices led some borrowers into mortgages that they would not have chosen knowingly."
What Bernanke did not admit was that it was a long series of Federal Reserve stimuluses, in the form of discount rate reductions, which encouraged lenders to lend out more and more money that the Fed was thereby creating out of thin air which really caused the current crisis. In essence, Bernanke is refusing to acknowledge that he bears any responsibility for the creation of this new money. Instead, he's blaming those for whom he created it, as if it's all their fault.
Bernanke is pissed off that the money he created was loaned to lower income, higher risk borrowers. He'd much rather that it only be loaned to wealthier, lower risk borrowers, because then it would be so much easier to get away with eroding everyone's wealth via Fed-induced inflation. Shaking down the entire population by eroding the value of their currency is much easier to do when the method involves only government and corporate borrowing. When lower income people get involved in the borrowing, it upsets the apple cart.
Such a shame...all those carefully laid plans for milking America one more time have been washed down the drain, and the milkmen are finding that they, themselves are being milked this time around. It's a bizarre version of "what goes around, comes around."
The truly irresponsible players in this whole charade are the Federal Reserve Board of Governors themselves, including current chair Bernanke and his predecessor, Alan Greenspan. I mean this literally, because they are responsible to no one, which is the ultimate in irresponsibility. The worst they ever have to worry about is when Bernanke appears before Congress and is required to accept another tongue-lashing from Congressman Ron Paul of Texas. It's a small price to pay for all the wealth the bankers secretly steal via Fed policy.
Speaking of Dr. Paul, his campaign released an extensive statement on hard money vs. fiat money today. Too bad he didn't do that before the New Hampshire primary, when it might have done more good. Instead of going with the "tried-and-true" method of limiting himself to generic soundbytes, it would have been really interesting if Paul had pounded the podiums with detailed messages about the ravages by the Fed on the economy. What Paul did say was very good, of course. I just wish he had said a whole lot more.
Did you like this article? If you did, Thumb It! 14 thumbs so far
The views expressed in this
article are those of Walt Thiessen only and do not represent
the views of Nolan Chart, LLC or its affiliates. Walt Thiessen is
solely responsible for the contents of this article and is not an
employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Ron Paul has been delivering the same message about our failing monetary policy for decades, you can go on youtube and see speeches he made in the 80's that predicted just what we are seeing now. This campaign has been no different. Limited to Generic soundbytes? Are we talking about the same Ron Paul? That's absurd.
"it would have been really interesting if Paul had pounded the podiums with detailed messages about the ravages by the Fed on the economy." Have you ever heard him speak? That is precisely what he talks about. He is the only presidential candidate to discuss monetary policy for as long as I can recall, and most definitely the only one in this campaign. I realize this article was not against Dr. Paul, but let's give the man credit where it's due, he's been warning us and speaking on this topic at every available opportunity likely since before I was even born. An informed public by a free press and an honest election would have us all chanting for Peace, Prosperity and President Paul.
Actually, I think that's a reprint of a speech he gave April, 2006. The part where he says "gold over $600 today", when it's now over $1000, is a hint.
But the message is right, today as then. Look for Gold going to $1500. There's nothing to stop it.
Posted By: Christopher Espinal
Date: 2008-03-14 22:18:07
Although I would agree that low interest rates essentially lead to a larger incentive for borrowing, I don't think that this is something that would only happen in a fiat money system. Anytime we have lower interest rates the economy can lead to such disasters - that's why even if there were no monetary policy there would be booms and busts. Thus it makes no difference.
Mortgage lenders did engage in pretty irrational transactions - because they hoped to profit from low-interest rate loans. If you think about what the sub-prime mortgage crisis is about - its about lending to people with no credit history. These people are the poor - who are fault for accepting offers they don't understand.
So low interest rates and the irresponsible market for sub-prime loanable funds are to blame.
I guess the challenging question to ask gold advocates is - if interest rates were low in a gold economy as opposed to a fiat economy would it make a difference? Any person who understands economics and incentives would realize that it doesn't matter because the incentives are the same in both cases.
Posted By: Jeremiah Johnson
Date: 2008-03-15 00:45:23
Christopher,
There are certainly fluctuations in the market and that is normal and acceptable. But the Fed's actions only have amplified the situation and made it a national cycle instead of local cycles.
Also, regarding the article, there is a little more to it then that. Several years ago some bureaucrats decided that everyone should be able to own a house. So they established Freddie Mac and Fannie Mae as companies to back loans to people with very poor credit and no down payment. This caused there to be a jump in used house sales. Because of the higher demand, the price of used homes went up. This caused used home owners to consider selling their used house at a high price and buying a new house. Then this made a higher demand for new houses. Then developers saw the higher demand and built as fast as they could to keep up with the high demand. But then many of those poor credit individuals, who live fairly unpredictable lives, stopped making their payments. This caused many of those homes to go into foreclosure. This caused most of these banks assets to be tied up in foreclosed homes, preventing them from having cash to loan out. Then there was a considerably lower demand for used houses then before. This then caused the prices to fall significantly on used houses. This caused many to be stuck with a new house while trying to sell their old house, and making payments on both. This then caused a lower demand on new developments which then meant a lot of developments were stopped half way through. Now a lot of developers are stuck with plenty of real estate that needs to be sold.
It is just one more example of the ramifications of government intervention.
Posted By: Walt Thiessen
Date: 2008-03-15 08:09:49
Chris: I think what Jeremiah meant is that when interest rates vary due to changes in market conditions, the effects tend more to be local rather than national. This happens because housing demand and financing supply can vary from region to region, thus leading to variations in interest rates from region to region. Fed policy, on the other hand, has more of a national impact, since the changes in interest rates they generate affect all regions of the country, not just a particular region.
Posted By: Walt Thiessen
Date: 2008-03-15 08:24:08
Also Chris, Re: your comment:
"Mortgage lenders did engage in pretty irrational transactions - because they hoped to profit from low-interest rate loans. If you think about what the sub-prime mortgage crisis is about - its about lending to people with no credit history. These people are the poor - who are fault for accepting offers they don't understand."
Your comment doesn't reflect the whole picture. The larger picture is that the Fed interventions (as always) were designed to stimulate economic activity. There simply wasn't enough borrowing going on among "good" borrowers, yet the money was there to be loaned "free of charge." (That's the money being created out of thin air business again.) Add in the fact that the real estate boom had been created by all this stimulus, and it is clear that both buyers and lenders had bought into the idea that this real estate market was going up permanently.
This is the major downside to stimulating the economy. It makes people believe that an economic boom is taking place which isn't really there, thus leading them to take actions they normally wouldn't take. Even though the lenders thought that the loans might have been more risky, they felt they were protected by the fact that housing prices kept going up. So even if the borrower defaulted, they could always just foreclose, sell the property, and get their money out of it. Further, the loans would show on their books as more business activity, making the investors in their companies happy.
Remember, no one really cared about the sub-prime lending practices until the false real estate boom stopped booming. Up until that time, everything was coming up roses. All those people who bought stock in Carlyle Group, for example, had no problem with the fact they were investing in higher risk mortgages because the return on investment looked so good at the time....because of the false real estate boom.
In a genuine real estate boom, investors would have been much more sheltered from the effects of loose lending practices and would probably have made out much better, because a genuine boom in any kind of market doesn't just collapse and disappear all at once like this real estate boom did. A genuine boom usually slows gradually enough that investors can apply the brakes in a rational fashion. Fed-induced busts usually happen more quickly than investors can react.
I'm not a guru on this stuff, but I have been trying to learn more. Articles like this, and especially the great follow-up discussion, are a great help. Thanks!
BTW, speaking of great sound bites:
Walt said: "It's a bizarre version of 'what goes around, comes around'."
Walt said: "This is the major downside to stimulating the economy. It makes people believe that an economic boom is taking place which isn't really there, thus leading them to take actions they normally wouldn't take.."
Jason said: "An informed public by a free press and an honest election would have us all chanting for Peace, Prosperity and President Paul."
Jeremiah said: "It is just one more example of the ramifications of government intervention."
Posted By: Walt Thiessen
Date: 2008-03-15 10:35:48
Note to Jason: Yes, I agree that Paul has been saying this for years. However, my point is that he didn't emphasize it very much during the heat of the campaign, choosing to stick to soundbites instead. That's a lesson that the Revolution needs to take from the Paul campaign. Soundbites aren't enough when the electorate isn't informed.
Ron Paul has been delivering the same message about our failing monetary policy for decades, you can go on youtube and see speeches he made in the 80's that predicted just what we are seeing now. This campaign has been no different. Limited to Generic soundbytes? Are we talking about the same Ron Paul? That's absurd.
"it would have been really interesting if Paul had pounded the podiums with detailed messages about the ravages by the Fed on the economy." - Have you ever heard him speak? That is precisely what he talks about. All the time, at every opportunity! In fact, he is the only presidential candidate to discuss monetary policy for as long as I can recall, and most definitely the only one in this campaign. I realize this article was not anti-paul, but let's give the man credit where it's due, he's been warning us and speaking on this topic for about 30 years now.
An informed public, a free press and an honest election would have us all chanting "Ron Paul".
Want to comment on this
article? Leave your comment here. Your email address is
required to track your comment. However, we will neither
publish your email address nor distribute it to other
organizations or persons. The only reason we might use
it would be if we needed to contact you regarding your
comment. All comments are subject to our
terms of use policy.
