The Fed's Canary in the Meltdown
As I read the investigation into the Federal Reserve on the front page of this morning's Washington Post, I remembered an obit from about two years ago of a Fed governor, Ed Gramlich. Sure enough, not far into the story about how the Fed failed in its duty to enforce the law, Gramlich's name popped up:
"In the prime market, where we need supervision less, we have lots of it. In the subprime market, where we badly need supervision, a majority of loans are made with very little supervision," former Fed Governor Edward M. Gramlich, a critic of the hands-off policy, wrote in 2007. "It is like a city with a murder law, but no cops on the beat."
He wasn't the only one warning of a disaster to come, of course, but he was one of the few in an official position who warned of what was to come. He expressed his concern in public speeches. "A good defense against predatory lending, perhaps the best defense society has devised, is a careful compliance examination for banks," Gramlich told a 2004 meeting of bankers in Chicago. He raised the issue in a private meeting with then-Fed governor Alan Greenspan. He had self-doubts, telling Greenspan later that if he had felt more strongly, he would pursued the issue further. But unlike many others, he raised it.
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