A Consumer Advocate Responds to Greenspan

By
Thursday, April 08, 2010 at 5:36 pm

Testifying to the Financial Crisis Inquiry Commission, former Fed Chairman Alan Greenspan and former Citigroup executives Robert Rubin and Charles Prince passed the buck. Rubin and Prince said they could not have understood Citigroup’s extraordinary exposure to the housing market or recognized the risk the bubble posed any earlier. And Greenspan poured water on the idea that he could have done more to diminish the housing bubble, saying he was “quite active in pursuing consumer protections for mortgage borrowers.”

Diane E. Thompson, a lawyer with the National Consumer Law Center, begs to differ. As part of the Federal Reserve’s Consumer Advisory Council, she and other consumer advocates alerted him to the looming crisis in mortgages starting in the early 2000s. We spoke earlier today; the interview transcribed below is lightly edited for length and clarity.

Greenspan’s testimony seemed to contradict even the Fed’s own reports on the housing bubble.

I was surprised to read what he said, because he articulated a view that’s been thoroughly discredited over the past several years. There was no meaningful regulation [in housing by the Fed] between 2000 and 2008. Statements were issued, but they weren’t binding — they were advisory and worked around the edges of the problem. Plus, there weren’t even any such statements during the height of the crisis! When things were gathering steam and hens were coming home to roost, the Fed did nothing. And it did nothing despite the fact that many consumer advocates were warning about loans in the subprime market. He says that he believed the sub-prime market was so small it wouldn’t matter to the broader economy. But obviously it did.

I also found it interesting that he said the problem was the demand for those loans. To some extent I agree with him. There was demand for these loans, of course, but had there been meaningful restrictions in place, this would not have become the crisis it did. The Fed finally put those restrictions into place in 2008.

The other point that struck me was his description of how involved the Fed was. He has cited the Consumer Advisory Council, but it was created by statute. The Consumer Advisory Council doesn’t exist by the good of the Fed’s heart. The years I served on it, it was dominated by industry. The Fed governors would say, “We have all these meetings with the Consumer Advisory Council! We get an interchange of views!” But my experience was that it was difficult to get consumers heard.

And the crisis was easier to see from the end-user, consumer side of it than the banking side?

The problem was obvious to those of us who worked in the communities where the housing bubble originated, particularly the African-American and Latino communities that were just obliterated by subprime lending. I think that there was this understanding that this was a minority-community problem — deplorable, but not exportable to the rest of the economy. That was wrong.

How often and how strongly did the Consumer Advisory Council warn the Fed about the housing bubble?

The council meets three times a year, and I was on it for three years, in 2003, 2004, and 2005. I know that during my time on it, as well as before me and after me, there were consumer advocates who said, “There are problems in the subprime market, and they could impact the entire mortgage market and the entire economy.“

That isn’t to say — I will not claim to have predicted the financial meltdown. To be honest, I was shocked, because I assumed that investment bankers had a better grasp of risk management. But, I know for years before I came on, and for years after I went off, at least from 2001 to 2007, at every meeting, people said, “There are problems in the subprime market. These policies aren’t promoting home ownership. If anything, they’re going to end up doing the opposite.”

I have heard statements from Greenspan in the past two years that seem to me more reflective of the role the Fed played and more cognizant of the fact the Fed missed signs of the crisis, which he did not say here.

What else surprised you in the testimony?

I was surprised at the attack on the GSEs [government-sponsored enterprises, Fannie Mae and Freddie Mac]. I was particularly surprised that he said that the banks weren’t the problem, but that the GSEs were. They got into the subprime boom late — and they aren’t what is driving the current foreclosure crisis. They contributed to the volume for some bad loans, but so did the large banks.

And so ultimately, as a consumer advocate…

There’s an assumption that runs throughout his testimony that these toxic products were in fact affordable products that increased home ownership. That continues to be a popular view among bankers. If you get rid of these toxic products you will reduce homeownership; these products help increase homeownership. That is contrary to all of my experience. There is just a weird tautology in saying there wasn’t a problem in the origination of the loans, but the demand for them.

There’s tremendous demand for cocaine — it would be like saying the issue isn’t the sale of cocaine, but the fact that there’s tremendous demand for cocaine. It is just bizarre. Can you imagine our drug enforcement focusing exclusively on drug users rather than drug dealers?

Follow Annie Lowrey on Twitter


Comments

30 Comments

uberVU - social comments
Trackback posted April 8, 2010 @ 6:14 pm

Social comments and analytics for this post…

This post was mentioned on Twitter by TWI_news: A Consumer Advocate Responds to Greenspan – http://bit.ly/cEL69b...


A Consumer Advocate Responds to Greenspan « The Washington Independent Consumer on Me
Pingback posted April 8, 2010 @ 7:53 pm

[...] posted here:  A Consumer Advocate Responds to Greenspan « The Washington Independent By admin | category: Uncategorized | tags: advisory, advisory-council, advocates-alerted, [...]


Mpower consumer video | Bad Credit - Loans, Repairs, Help, Mortgage news and information.
Pingback posted April 8, 2010 @ 9:53 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


chrisjay
Comment posted April 9, 2010 @ 12:36 am

Anybody who has been fooled by Emperor Greenspan's dazzling outfit for the past decade is a real rube. It has been so easy, for anyone with five or six brain cells, to see this old fool for what he is ———I mean besides pathetic.


Steven
Comment posted April 9, 2010 @ 4:48 am

I used to respect him, but after repeating this discredited conservative talking point, I think of him now as simply a partisan hack.


WilliamPGH
Comment posted April 9, 2010 @ 1:10 pm

Remember this these executives are experts in what they do. I would love to know what constitutes an expert, obviously expert in smoke and mirrors, lies and deception. What happened and is still going on is deploreable.


Around the Web: From Maestro to Cornered Rat « Where's Our Money
Pingback posted April 9, 2010 @ 4:05 pm

[...] performance was incredulity at his assertion that he was caught by surprise by the mortgage crisis. Diane E. Thompson, an attorney with the National Consumer Law Center, said in an interview with Washington [...]


jackhaydon
Comment posted April 9, 2010 @ 3:38 pm

Amen. I am a Realtor in Florida and I saw the looming housing crisis in 2004.


» North-West nursing jobs may go to cut costs
Pingback posted April 9, 2010 @ 6:28 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Take mom out for dinner this Mother’s Day | Cell Phone Choice Blog
Pingback posted April 9, 2010 @ 7:36 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Obituaries reported in the April 8, 2010, Advocate | eastwestbakery.com
Pingback posted April 9, 2010 @ 7:39 pm

[...] A Consumer Advocate Responds to Greenspan « The pedagogue Independent [...]


Fisher-Price Kickin Crib to Floor Piano Review | Fisher Price Baby … | baby toys
Pingback posted April 9, 2010 @ 8:23 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Really Make A Difference With Your Budget Utilizing A Consumer Debt Elimination Software Program - Pet Care Information
Pingback posted April 10, 2010 @ 10:27 am

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Edmonton airport wants more business from Red Deer
Pingback posted April 10, 2010 @ 7:44 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Lanyon brings hotel price comparison to corporate travel | travel hotel
Pingback posted April 10, 2010 @ 11:18 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Debt Relief & Management Tips : How to File Bankruptcy
Pingback posted April 11, 2010 @ 2:21 am

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Flat Fee MLS! » Florida Homeowners Association Disclosure Act | Baker County FL Real Estate
Pingback posted April 11, 2010 @ 5:33 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Picking out the best Search engine marketing Technique | Home … | Promotional Media Marketing Wisdom
Pingback posted April 12, 2010 @ 4:22 am

[...] A Consumer Advocate Responds to Greenspan [...]


Calendar | Wedding Planning Guides and Tips
Pingback posted April 12, 2010 @ 10:25 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Bargain Deals On Great Products – Talking Politics – Yahoo! News UK
Pingback posted April 12, 2010 @ 10:46 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


North Carolina man’s donated kidney came with a surprise – Tue, 04 May 2010 PST | free-personal-injury-lawyer
Pingback posted May 9, 2010 @ 12:25 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Has anyone heard of the my bank my loan my way mortgage with american guarantee mortgage? | equity loans
Pingback posted May 11, 2010 @ 2:16 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Consumer champions gain wins on financial overhaul | personal injury lawyers
Pingback posted May 17, 2010 @ 2:51 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Wisconsin Governor Jim Doyle outlaws Auto Title Loans | equity loans
Pingback posted May 22, 2010 @ 5:31 am

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Consumers win protections in bank-reform bill | equity loans
Pingback posted May 24, 2010 @ 5:41 am

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Stop Prop 17: Mercury’s New Deceptive Mailer: Military Members Must Not Be ‘Responsible’ Drivers | online car insurance
Pingback posted May 24, 2010 @ 11:11 am

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Money Merge Account Mortgage Accelerator Clip ch | Best Debt USA
Pingback posted July 16, 2010 @ 4:47 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Money Merge Account Mortgage Accelerator Clip dr | Best Debt USA
Pingback posted July 16, 2010 @ 4:58 pm

[...] A Consumer Advocate Responds to Greenspan « The Washington Independent [...]


Complaints web » Consumer Advocate
Pingback posted September 23, 2010 @ 2:07 am

[...] 2.A Consumer Advocate Responds to Greenspan « The Washington Diane E. Thompson, a lawyer with the National Consumer Law Center, begs to differ. As part of the Federal Reserve’s Consumer Advisory Council, she and other consumer advocates alerted him to the looming crisis in mortgages starting in the early 2000s. We spoke earlier today; http://washingtonindependent.com/81735/a-consumer-advocate-responds-to-greenspan [...]


Baby Mirrors
Trackback posted December 11, 2010 @ 4:03 pm

Fisher-Price Precious Planet Crib-to-Floor Mirror Reviews…

I found your entry interesting thus I’ve added a Trackback to it on my weblog :)…


RSS feed for comments on this post.

Sorry, the comment form is closed at this time.