If you read my previous article, "Pointing the Finger At Who Is To Blame," you know that the Federal Reserve is often criticized for not having stepped in to resolve our credit problem earlier on. To be more specific, the Fed and Alan Greenspan are criticized for having kept interest rates low for far too long a period of time.
In an article by Jeannine Aversa, AP Economics Writer, she writes about prior Fed Chairman Alan Greenspan and his omission to having been aware of our mortgage dilemma. Here's an excerpt from the article:
"'While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,' he said in a CBS "60 Minutes" interview to be broadcast Sunday. 'I really didn't get it until very late in 2005 and 2006,' Greenspan said."
"The Greenspan Fed from early 2001 to the summer of 2003 had slashed interest rates to their lowest level in decades. It was done to rescue the economy from the blows of the bursting of the stock market bubble, the 2001 recession, the terror attacks and a wave of accounting scandals that shook Wall Street.
Critics say the Fed kept rates too low for too long, encouraging a Wild West mentality in housing."
What are your thoughts? Was the Fed, under the guidance of Alan Greenspan, the sole perpetrator behind the credit problem that we face today?
I think everyone should be held accountable to a certain extent.
--> A manipulation of the capital markets made the risk/reward incentive enticing enough for investors to back the lenders.
--> The lenders then pushed the envelope by continuing to open up loan programs
--> The brokers on the street level pushed these loan programs with some help from their comrades, the appraisers
--> then borrowers jumped at owning as much property as they could with hopes of "flipping" their investment and in the process took the lowest teaser rate bid being offered by the pool of brokers.
I think the source of the problem in it's simplistic form was: "Easy Money" being issued.
And it was perpetuated by everyone!