I wouldn't beat up on Bair too much. She took office on 2006, after the worst of the bubble run-up was over. And she has been out in front more than any other regulator. Cf. "In 2001, a senior Treasury official, Sheila C. Bair, tried to persuade subprime lenders to adopt a code of “best practices” and to let outside monitors verify their compliance" from http://www.nytimes.com/2007/12/18/business/18subprime.html and http://www.nytimes.com/2007/12/15/business/15nocera.html.

I don't think that anyone (including you) anticipated that this would devastate the financial system quite this way...

Plus, the first big thing she did upon heading the FDIC was start campaigns against payday lending and Wal-Mart, I assume that you would be in favor of those things.

Housing prices have been going straight up if you look at the chart it look like steeper than exponential curve.

Local governments with the help of appraisers were inflating the prices of houses to get more property taxes. Who is going to be punished for it. Now the local municipalities are threatening to stop essential services if they don't get more tax money. talk about black mail.

The house of cards had to come down. it is just that wishful thinking is embedded to the American dream.

Like Roubini says another depression will clear all this.

A,

actually, I have been saying that the housing crash would lead to a financial crisis since the summer of 2002, so it was possible to know such things.

More importantly, the point here is the use of the passive tense is a classic Washington denial of responsibility. The crisis is worse than Bair expected. People have expectations, they don't just exist floating around in the universe. The NYT should not be assisted public officials in covering up their mistakes.

For the record, i think that Bair has done many good things in her position at FDIC, for example putting a freeze on foreclosures after taking over IndyMac. But, she still should own up to her mistakes and this was a big one.

Dean's column's are archived at the Center for Economic and Policy Research where he has predicted that housing fiasco would end in tears and ashes. Krugman and Robert Schiller were also predicted that the end of the bubble would be catastrophic.

I don't think local governments (except to the extent that they rolled over for developers and home builders) had much to do with housing prices rd. An asset bubble is a credit phenomena, and was caused by the forced draft of money that banks and mortgage companies blew into the housing market and the debasement of loan standards because of the tremendous up-front profits in fees and in selling mtg backed securities. No, like other asset bubbles going back to the Dutch Tulip bubble, this was a failure of the market and the fallible, sometimes irrational, emotion driven, subject to Group Think, human beings who make up the market, no matter how much that hurst you libertarian utopians.

By the way, you are upset that local Governments are threatening to raise taxes or cut services. Human beings generally supply such services, and they probably expect to be paid, or else they will go do something else. If you don't want to pay taxes, then do without the services and live with the consequences and enjoy our continued descent to third world status (see state of Mississippi).

Incompetence, yes, casued by commitment to an ideology. The ideology of self-interest trumps all, wrapped in a con-job ideology called 'free markets'. Ya gotta love the yahoo's that are using this train wreck as 'proof' that government action is always bad. The great thing about a real 'ideology' is that all data supports its always. Anytime is a perfect time to buy or sell a stock!

Certainly there were high officials and financial leaders who didn't recognize the bubble, but there was a much larger cohort who were smart enough to see it, but who ignored the warning signs because it was not in their short-term interest to see it coming. Specifically, any senior executive of a major financial institution could see as of '06 that the market was saying that MBS were far riskier than the ratings suggested, and yet almost all of them ignored that flashing red warning signal. Since the one thing a financial mandarin is supposed to understand is risk, we have to assume that they ignored the signals since the securitization machine was so profitable, paritcularly for them.

This isn't a failure of "free markets" its a failure of a massive government intervention-- primarily the Fannie Freddie structure, Greenspan's bailout of LTCM which created new implicit Fed guarantees for all large finance companies, and new tax breaks for housing-- all combined created systemic moral hazard.

In a true free market most of the banks would be wiped out already and new players and structures would be emerging.

JM & J!-- any idjit who looked to buy a house in the summer of 2003 knew there was a housing bubble.

Your realtor would call Monday morning to say "I've pocketed a listing this weekend that I don't have to put on the MLS till noon Tuesday-- hurry up & let's go see it!"

You'd arrive at 8:00 am, & the block would already be filled with other agents with clients in their cars circling & waiting like buzzards till your agent finished showing it to you. Your agent would point out the window at them, & tell you "If you don't make an offer on this, one of them certainly will".

And it was true. Any decent home in Norfolk VA would get multiple offers on the same day it was listed, (if it hadn't already been sold by an agent with a call list of buyers waiting in the wings, before it even appeared on to the MLS--).

All these experts now who claim "gee, I didn't see any bubble--" baloney! So, we're to presume that somehow they just never happened to notice when their own property taxes were going up 25%, 35%, 50% every few months?

The bankers acted in their own self-interest by maximizing their bonuses. Prince and O'Neill walked away with hundreds of millions of dollars. Robert Rubin has also been handsomely compensated as a board member at Citi. It is difficult to argue that they were incompetent in enriching themselves.

After the terrorist-guided aircraft slammed into the WTC, the head of the NSC...that stands for National SECURITY Council... safe within DC bozone layer,brazenly blurted out that she never discussed a scenario that was not only made famous by a book and subsequent Hollywood movie, where a nutcase hijacks a plane in order to crash it into the Nixon Whitehouse, but was also in the minutes of an August meeting at which she was in attendance, not only doesn't get fired for complete incompetence, but is promoted to Secretary of State, with nary a whisper of protest from anyone, why is it shocking to find that those in charge of mere financial securities are not held accountable either?
As long as you go along, you'll get along, such has always been the case with any monarchy. Why are you so nonplussed that ours is no different simply because we call it by a different name?
There is no accountability to the public, only to the President. After 8 years why is this still news?

My forescasts of housing crash and problems thereupon attending were made on maxspeak, whose files the Great Max has now under lock and key, unfortunately.

Barkley Rosser wrote,
My forescasts of housing crash and problems thereupon attending were made on maxspeak, whose files the Great Max has now under lock and key, unfortunately.

Well, I would figure the Internet Archive might have Maxspeak pages; it appears they do.

Doubt they have comment sections, though.

Chris wrote, In a true free market most of the banks would be wiped out already and new players and structures would be emerging.

Except that the economy would have crashed in the meantime because of the ensuing credit collapse.

Lets not forget about zoning restrictions when assigning blame for the run up in housing prices.
As Shiller points out in Irrational Exuberance, when local governments restrict new housing construction because of NIMBY pleas or complaints about sprawl or whatever. The prices of existing houses can skyrocket, because housing becomes a limited resource instead of a manufactured product. This is why we see more persistent bubbles in what he calls the 'glamour cities'. And less in cities like Dallas where new construction is easy to approve. It would be like having an automobile price bubble- absurd, because cars can be easily manufactured, flooding the market if a bubble were to develop, same theory with housing in easy to zone cities.

PS. I live in New York, where prices are still very high and not falling much. I blame zoning restrictions for the lack of affordable housing here.

We have many new immigrants willing to pay top dollar for housing, but very old housing stock. We need more construction and more infrastructure to handle the larger population that wants to move here, but instead 80 year old houses are getting bid higher and the price mechanism is forcing people out of the city, mostly to lower cost southern cities (and brand new homes).

liberal,

Thanks, although the link did not work for me. But it does seem that something is somewhere not totally inaccessble.

We have only one way out. Read this proclamation:

www.TakeBackThefed.com

Dean,

I hope and will greatly appreciate if you respond to the following:

"For the record, i think that Bair has done many good things in her position at FDIC, for example putting a freeze on foreclosures after taking over IndyMac." You are correct! However, you missed the most recent consumer-oriented things she did for all IndyMac borrowers: Last week, she announced the IndyMac Federal Bank will restructure all problem loans (too costly for borrowers). Not sure if you are aware of that decision.

You also said "But, she still should own up to her mistakes and this was a big one."

The big players/culprits that you mentioned or we know such as Citigroup, Wachovia, Bear Stearns, ML, Freddie, Fannie, IndyMac, WaMu, and Countrywide are all regulated by agencies other than hers, FDIC.

This is something that many people don't realize. Federal Reserve and Treasury are the regulators for those outfits. Before the firms' downfall, her agency has little direct access and no supervisory authority.

Put the blame where it should be.

Let’s not forget the words of Judge Stanley Sporkin after the S&L disaster, “Where were the lawyers?” Judge Sporkin is a lawyer. What has he done before or since to clean up his profession? If he and other lawyers had acted on his words, we would have avoided the financial catastrophe that is upon us now.

Consider the words of Richard L. Abel, Connel Professor of Law at UCLA (from 59 Texas Law Review 639, 1981): “Study after study has shown that the current rules of professional conduct are not enforced. Misconduct is rarely perceived. If perceived, it is not reported. If reported, it is not investigated. If investigated, violations are not found. If found, they are excused. If they are not excused, penalties are light. And if significant penalties are imposed, the lawyer soon returns to practice, in that state or another. Lawyers constantly condemn the failure of the criminal justice system to deter crime for precisely these reasons…Indeed, we know that the efficacy of social control varies even more strongly with the likelihood of punishment than it does with the severity of the sanction. Yet on both counts, especially the former, the professional disciplinary system falls far below the wholly inadequate standards of the criminal law. Lawyers can hardly present their travesty of a penal system as an effective deterrent.”

Where were the lawyers? Showing the other members of their over-privileged class how it’s done.

And let’s not forget that five Justices of the US Supreme Court violated their oath of office in Bush vs. Gore. What has been their punishment?

“[T]he decision in the Florida election case may be ranked as the single [sic] most corrupt decision in Supreme Court history, because it is the only one that I know of where the majority justices decided as they did because of the personal identity and political affiliation of the litigants. This was cheating, and a violation of the judicial oath.” (Alan Dershowitz, although I am not endorsing the man, and I note that he is a lawyer.)

It never ceases to amaze me, the wailing and gnashing of teeth occurring as if the housing bubble/credit crisis is the breaking of a commandment and we need penance. Stop it.

Owning a home bigger than you can afford IS the American dream. We as a nation collectively are addicted to spending, addicted to advertising. How else can you expliain Enzyte taking in more than $400 MILLION in revenue.

Come to grips with it. We don't want savings, we want to buy stuff. If we can't afford it, we file bankdruptcy and move on to buying more stuff. It's not a crisis. It's not the end of the world. We will spend every dime we have, every dime someone will loan to us, and every dime of our past generation's wealth. What is the big deal?

If you don't want to pay taxes, then do without the services and live with the consequences and enjoy our continued descent to third world status (see state of Mississippi).

Mississippi is hardly 3rd world status. You should leave your ivory tower and visit it sometime. Then visit Afghanistan or Zimbabwe.

The folks in Mississippi pay taxes and get services. They just have low taxes, but they seem to be doing all right. All sorts of folks are moving from adjacent locales with higher property taxes to Mississippi. Of course, the legalization of gambling has helped quite a bit with the state's revenues.

Hey, remember when they said that noone could have predicted the levees breaking (except for people interviewed fleeing the city)? Or someone flying a plane into a building (except for Tom Clancy, apparently)?

WHOCUDDANODE? The cry of the incompetent.

Ref: Mississippi.

I remember living there in '85. They had big sewage pipes running right into the ocean near the beach (where the casinos are now). Dozens of hep B cases every year. Also, they'd just raised the mandatory minimum school age from 7 to 14 - they were quite proud of themselves.

Lots of folks living in shacks I wouldn't have stored tools in.

It's not Afganistan, as you say, but it compared unfavorably to, say, urban Thailand. Or Malaysia.

Nice folks, though. Unless they found out I was a yankee.