ASLEEP AT THE WHEEL

How the Fed Missed the Mortgage Crisis

Sat on hands despite evidence of abuse.

At the heart of a new plan by President Obama to create a watchdog agency to oversee consumer protection is the disastrous job the Federal Reserve did with its own responsibilities over the last decade. The organization was in charge of monitoring subprime mortgages only to see them spiral out of control as officials did little to follow up on evidence of abusive practices. According to The Washington Post, experts and current and former employees blame everything from anti-regulation attitudes among top Fed officials to the lack of follow-up on anecdotal evidence of problems. "It is like a city with a murder law, but no cops on the beat," former Fed Governor Edward Gramlich warned in 2007, concerned that despite rules on the books regulating subprime mortgages there were few people assigned to enforce them. From 2004 to 2007, banks made some 1.1 million subprime loans, a grand total of 13 percent of all home loans, the Post reports, many of which ended up in foreclosure and helped spark the financial meltdown in 2008.