Bubble ben bernanke says low rates "DIDNT" cause bubble.

Discussion in 'Wall St. News' started by S2007S, Jan 4, 2010.

  1. Sorry, I don't speak no Mexican.
     
    #21     Jan 5, 2010
  2. achilles28

    achilles28

    Lol !
    :D
     
    #22     Jan 5, 2010
  3. We need more regulation to fix things because - it has worked so well in the past.
     
    #23     Jan 5, 2010
  4. piezoe

    piezoe

    That might very well be true. Much like a private loan outside of the banking system. Those loans, however, were promptly sold to some other entity. And virtually all of the money being loaned would have, it seems, flowed through regulated commercial or investment banks either at the front or the back end of those loans. So I would think that the Fed together with the SEC would not have been entirely powerless in seeing that lending standards were tightened up. I have always thought that a primary contributor to all those bad loans was just Greenspan's personal philosophy. He was the chief regulator, but he did not believe in regulation.

    Another factor that does not get mentioned often was the invention of mortgage securitization by Salomon Bros. and First Boston back in the 1980's. When that happened there was, according to some estimates, about a ten-fold increase in the amount of mortgage money available to loan. I guess because it was suddenly much easier to peddle the resulting securities than it had been to sell the old intact mortgages, which had the unattractive features of all being for different face values, and the buyer was always subject to them being paid off prematurely.

    Still another factor, in my opinion, was the proliferation of banks aided by interstate banking. The number of banks grew tremendously. And why not? With the economy expanding, anyone who could get their hands on the necessary capital could start a bank and make a killing via the fractional reserve requirements. Thus there was all this money chasing after clients. The borrowers and the real estate promoters were in the driver's seat.

    When you roll all this together: low interest rates, lots of money to lend, lots of lenders competing with each other, and a chief regulator who did not believe in regulation, you had the necessary ingredients for a mortgage meltdown.

    I suppose what Bernanke meant when he said low rates were not responsible for the crisis was, that even with low rates, had there been sufficiently tight lending standards the crisis would have been avoided. If that's what he meant, then he is probably right.
     
    #24     Jan 7, 2010