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Mortgage meltdown

Joseph Rosenbloom The Boston Globe
Mortgage meltdown - Mortgage - Housing Crisis - Financial Market - United States

When Ned Gramlich was a Federal Reserve Board governor a decade ago, he became alarmed about the proliferation of subprime mortgages in the US banking system. According to Gramlich, he urged Alan Greenspan, then the Federal Reserve chairman, to crack down on the practice.

Similar recommendations emanated from the General Accounting Office and a Clinton administration task force on predatory lending.

Before the mess in the financial markets transmogrified into a monster, Greenspan might have intervened. Under a law that Congress passed in the early 1990s, the Federal Reserve had the power to oversee banks like Citigroupand HSBC that were writing the subprime loans. But Greenspan rebuffed appeals to act, saying it would be a “huge effort’’ and might have undermined “the desired availability of subprime credits,’’ as recounted in Alyssa Katz’s “Our Lot: How Real Estate Came to Own Us.’’

That the Federal Reserve chairman so badly booted his responsibility at a critical juncture strikes a jarring historical chord in the backdrop of today’s deliberations over how to safeguard the nation’s financial system. Expanding the power of the Federal Reserve is a centerpiece of President Obama’s plan to prevent another financial meltdown.


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