Also published at my web magazine, The Public Record.
A 2008 timeline of the subprime mortgage crisis and its impact on the economic meltdown.
Long before the Wall Street banks imploded in a wave of subprime mortgage defaults and home foreclosures, congressional lawmakers had called upon Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to swiftly rein in predatory lenders whose unorthodox practices in the subprime industry threatened to derail the global economy.
Democratic presidential candidate Barack Obama was one of those lawmakers. In a March 22, 2007 letter, Obama urged Paulson and Bernanke to convene a “a homeownership preservation summit with leading mortgage lenders, investors, loan servicing organizations, consumer advocates, federal regulators and housing-related agencies to assess options for private sector responses” to the wave of foreclosures.
“Regulators are partly responsible for creating the environment that is leading to rising rates of home foreclosure in the subprime mortgage market,” Obama, the Democratic presidential candidate, said in the letter. “We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes. And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly. Please don't let this opportunity pass us by.”
The Fed chairman and the treasury secretary declined to act on Obama’s suggestion.
In fact, in testimony before the Congressional Joint Economic Committee in March 2007, Bernanke, considered a scholar on central banking, said, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”By March 2007, more than two million people who had subprime mortgage loans were projected to face foreclosure. Nearly 20 percent of subprime mortgages issued between 2005 and 2006 were estimated to go into default and lead to nearly $200 billion in losses, according to a December 2006 study by the Center for Responsible Lending, a nonpartisan research and policy organization.
Yet Bernanke told lawmakers then that while the problems in the subprime mortgage industry have caused "severe financial problems for many individuals and families," it was highly unlikely that it would affect the overall economy.
Two months later, Bernanke spoke before the Federal Reserve Bank of Chicago about the skyrocketing defaults in mortgage loans and home foreclosures and said the economic issues affecting subprime lenders would not ripple into a broader economic crisis nor would it have an impact on huge Wall Street financial institutions.
Bernanke went even further in his remarks. He said that heavy-handed regulation proposed by Democrats would lead to a further meltdown in the housing market.
“Rules are useful if they can be drawn sharply, with bright lines,” Bernanke said during a May 17, 2007 speech at the Federal Reserve of Chicago. “Sometimes, however, specific lending practices that may be viewed as inappropriate in some circumstances are appropriate in others.”
By mid-2007, Democratic lawmakers urged Bernanke to deal with banks predatory lending practices that caused the economic volatility in marketplace.
At a Senate hearing in March 2007, Senate Banking Committee Chairman Christopher Dodd detailed a "chronology of neglect" by federal regulators.
“Our nation's financial regulators were supposed to be the cops on the beat, protecting hard-working Americans from unscrupulous financial actors," Dodd said at the time. "Yet they were spectators for far too long."
In his speech before the Federal Reserve Bank of Chicago in May 2007, Bernanke said he believed that legislation aimed at tightening regulations could cut off credit and hurt the economy.