> Throughout the financial industry, "Greenspanism", the idea that the market knows best, became the watchword of the regulators and the regulated, meaning that the regulators often failed to take action around worrisome trends.
While that's commonly believed, the office of thrift supervision (the US agency that regulates banks - the name is historical), vehemently disagrees and says that the insurance regulators do as well.
I note that the chairman of the fed doesn't know what's regulated.
> The Federal Reserve, for example, could have punctured the housing bubble at any time by saying loudly and forcefully "this is a bubble, you have to stop now". The results might not have been pretty then but they even uglier now...
The fed isn't a regulator of financial institutions. Instead, it is supposed to handle monetary issues.
Note that crashing the market (via raising interest rates) wasn't politically possible, and regulators only do what is politically possible.
And, to the extent that bogus-type transactions were occurring, crashing the market wouldn't have stopped that. They'd have just gone down in proportion.
>> The Federal Reserve, for example, could have punctured the housing bubble at any time by saying loudly and forcefully "this is a bubble, you have to stop now". The results might not have been pretty then but they even uglier now...
> The fed isn't a regulator of financial institutions. Instead, it is supposed to handle monetary issues.
Whatever its official duties, the Fed is considered a central bank. Centrals banks as a rule have been considered to have wide latitude for action on the economy in general, by policy makers, by their heads, by the financial community and by the public at large. Certainly, we can see the Fed taking wide action today.
Just consider - I'm sure you know the William McChesney Martin quote that the job of the Fed is "to take away the punch bowl just as the party gets going". This means looking at the economy as a whole.
> Note that crashing the market (via raising interest rates) wasn't politically possible, and regulators only do what is politically possible.
This is indeed true. Politicians may sink to the point that they only follow immediate popular options. CEOs may lie, cheap and steal due their pathological greed. Doctor may do a bad job due to habitual incompetence. In each case, it might indeed be true that nothing was possible at the time that it happened. One nonetheless must point out what these people ought to have done, whether they really could have done it or not.
I would note that the rise Greenspanism/"market fundamentalism" itself, starting in the 1990's, certainly made it much more politically difficult to stand against Wall Street's further partying in the 2000's.
> And, to the extent that bogus-type transactions were occurring, crashing the market wouldn't have stopped that. They'd have just gone down in proportion.
This is pure speculation on your part. I could equally speculate that they would have gone down as a proportion given that the total supply of loans was now down and honest deals are more desirable than dishonest deal. Further, actual bogus loans were only the final straw which broke the back of house price inflation. At wasn't the fundamental problem. We can see a huge number of ordinary loans which are coming undone at the moment (and without the massive intervention of the Fed, there would be even more).
Yes, the fed is considered a central bank. However, it actually doesn't have any regulatory authority over financial institutions. It only has monetary powers.
No one in govt wanted the Fed to crash or slow down the housing market, so it's unclear how one can conclude that different regulations would have caused the Fed to do so.
> One nonetheless must point out what these people ought to have done, whether they really could have done it or not.
That depends on what said "pointing out" accomplishes. If it fuels bad policy/giving further power to the people who failed, it's a bad idea.
> I would note that the rise Greenspanism/"market fundamentalism" itself, starting in the 1990's, certainly made it much more politically difficult to stand against Wall Street's further partying in the 2000's.
If you're going to argue that the President and Congress weren't going to do anything, then it's unclear who you think would have done something.
I will note that McCain tried to get Fannie and Freddie under significant regulation during Bush's first term. He got a little support from some Repubs, no support from the rest, and kicked in the teeth by all the Dems who are currently screaming for more regulation and about how Bush screwed things up.
While that's commonly believed, the office of thrift supervision (the US agency that regulates banks - the name is historical), vehemently disagrees and says that the insurance regulators do as well.
I note that the chairman of the fed doesn't know what's regulated.
> The Federal Reserve, for example, could have punctured the housing bubble at any time by saying loudly and forcefully "this is a bubble, you have to stop now". The results might not have been pretty then but they even uglier now...
The fed isn't a regulator of financial institutions. Instead, it is supposed to handle monetary issues.
Note that crashing the market (via raising interest rates) wasn't politically possible, and regulators only do what is politically possible.
And, to the extent that bogus-type transactions were occurring, crashing the market wouldn't have stopped that. They'd have just gone down in proportion.