American Government Failed To Note Warnings From Increasing Number Of Foreclosures
The American government failed to take note of warnings from increasing number of foreclosures. The Bush administration did not pay heed to suggestions to crackdown on risky mortgages that were touted with no-down-payment and interest-only options. The government was being pressurized to ignore these warnings and proposals by the same banks that are now down on its knees. It is surprising that the government ignored persistent prophetic warnings of a financial crisis as per the findings of Associated Press review going through regulatory documents.
Paris Welch, a mortgage lender from California had written, “Expect fallout, expect foreclosures, expect horror stories” as far back as January 2006. A year later the housing crisis took away her job. The regulators bowed to the aggressive arguments from the banking sector that assured them that the risky mortgages were not risky at all. This caused the regulators to delay action by over a year. By the time fresh rules were enforced the meltdown had started. David Schneider of Washington Mutual told the federal regulators during the early part of 2006, “These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages.” After two years Washington Mutual hit the headlines to be the worst instance of bank failure.
The government literally turned a blind eye to the coming crisis – despite being repeatedly warned. This was typical of its own philosophy of trusting market forces and playing down the role of the government in invigorating the economy. The irony is that it has led to the greatest governmental intervention since the time of the Great Depression! Kevin Stein of California Reinvestment Coalition is another person who had warned authorities of the impending crisis. He said, “We’re going to be feeling the effects of the regulator’s failure to address these mortgages for the next several years.” He had wanted regulators to tighten the rules of lending before things became too late.
Most of the banks that had ignored these warning are now in the soup. Some have downed shutters while others are standing before the feds with begging bowls. Ironically many of the top-ranking executives continue to rule even though their policies caused this foreclosure related financial crisis.
In 2005 bank regulators had suggested a new set of rules for the banks. They could foresee the foreclosure crisis. But all that has become history.
