Um…maybe credit is a little too tight

October 2nd, 2014 at 5:01 pm

As per Bloomberg, apparently no less then Ben Bernanke was recently unable to refi his mortgage. Now, I get that the dude left a good government job where you could print your own money, but still, is he really a credit risk?

“The housing area is one area where regulation has not yet got it right,” Bernanke said. “I think the tightness of mortgage credit, lending is still probably excessive.”

Ya think?


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7 comments in reply to "Um…maybe credit is a little too tight"

  1. rjs says:

    ok, this calls fro a replay of Bernanke’s & Geithner’s Troubles at Home from 2009, which includes a Daily Show video…

  2. dwb says:

    Sorry, “Thanks Obama” was really all I could muster due to extreme frustration. The command and control regulation under this administration has been atrocious, and does not solve the underlying problem. We have bank regulators (literally) going through loan documents. It’s absurd.

    The fundamental problem is that we allowed banks to get too big to fail. When the economy tanks, or a large sector of the economy goes into recession, whether its 3500 Savings and Loans or 3-4 large banks, banks will fail No amount of regulation or regulators going through loan documents solves that. We need a system that insulated the economy from banks failing. They will fail. Guaranteed, next recession. Loans are made based on *expectations* of future income. If unemployment is higher than expected, more than expected loans will default.

    In the 80s and 90s, the Fed caused the recession(s) to bring inflation down. We saw lots of S&Ls fail. In 2006-2007, the Fed was peevishly focused on inflation, not rising unemployment. Remember, rates were 2% the day Lehman failed, and the Fed minutes showed a Fed overwrought about commodities inflation and ignoring deteriorating business conditions. Tighter than expected monetary policy and the associated higher than expected unemployment causes more than expected loans to fail. period. Required bank capital is a function of expected monetary policy.

    Of course, when you ignore economics and allow banks to get too big in the first place, stop worrying about too tight fed policy, and try command and control regulation by going through loan level documents, you end up with nonsense where Ben Bernanke can’t get a loan because the banks are more interested in CYA.

    • Mary says:

      Fed = government = Obama
      Do you really believe this? The Fed is really the banking system and is generally autonomous. It has a mantle of government covering it to lend it the aura of legitimacy. And – the government is hardly controlled by Obama. Believing simplistic ideas like this keeps people from actually addressing the problems in the system – which is the intent in convincing you of this in the first place.

      • dwb says:

        The Fed, Treasury, OCC, and FDIC write regulations in tandem much of the time (e.g. capital rules). To say the Fed regulates banks “autonomously” shows poor knowledge of bank regulation.

    • David says:

      Um, “We have bank regulators (literally) going through loan documents. It’s absurd.” – absurd? Really? When I worked for the FDIC, pre-9/11, there was (and I assume there still is) a large group of compliance examiners who did that pretty much all day long, since their whole responsibility was to ensure that banks were complying with truth in lending laws. What do you think regulators are supposed to do if you don’t want them actually regulating?

      Why do you say things about recessions and S&L failures in the same sentence? There’s almost no relationship there, since the S&L failures were caused by speculation and risk taking in markets they poorly understood after regulations were eased, and they’d eventually have crashed with or without Fed action on inflation.

      And all you need to do to prove that “no amount of regulation can prevent bank failures” is false is to look at the history of bank failures by year in the US. Bank regulation essentially eliminated failures as a major economic problem for decades, then loosening the regulations directly resulted in waves of failures – and it’s also clear that the behavior of the Fed in terms of interest rates was irrelevant over those periods.

      • dwb says:

        wow, since before 9/11 there was a large group of compliance examiners going through loan documents all day long? How’d that work out? We must have had no fraudulent liar loans originated since… oh, wait…

        The government cannot possibly ever have enough people to triple check the paperwork on the tens of millions of loans originated every year. They might audit a tiny % of them based on scanned documentation submitted with the application, after the fact. Perhaps they can detect patterns well after the fact, usually when the defaults start showing up. Way too late. I guarantee you, no matter how many people are staffed, there are bad loans with improper documentation being underwritten right now. As long as there are loan documents, there will be people who think its worthwhile to get free money by faking them. The only way to prevent them is to be there at the table when they are signed by the underwriter/originator and borrower.

        Incentives: Bad regulation is bureaucracy. Good regulation is incentives. We have too much bureaucracy by people trying to prove how tough they are, not enough incentive to catch the bad apples at the table before the documents are signed. Too rigid adherence to rules (which are ultimately only as sensible as the regulators and modelers who write them). The consequence is silly stuff, like Ben Benanke not getting a refi. Someone out there will approve Ben for a mortgage. but, egads, it will require human judgement and who’s going to approve that in todays command and control environment?!

  3. Larry Signor says:

    Awesome. BB can’t re-fi. I would guess there is a brain dead banker applying for (short term) unemployment benefits. My laugh for the day.