The following is an excerpted introduction from and link to an extraordinary article by Elizabeth MacDonald of Fox Business.  

The horrors detailed in the piece are difficult to read following Ben Bernanke's reconfirmation as Chairman of the Federal Reserve last week.  The analysis is a worthwhile read which describes the institutional failure of the entities and individuals we trusted to keep our banking and mortgage systems solvent.  It demonstrates the absurdity of continuing to rely on these individuals/institutions to navigate us out of the present malaise when each has repeatedly demonstrated for years a lack of understanding of the fundamental problems afflicting our economy.


Housing Red Flags Ignored
February 2nd, 2010

One of the nation’s biggest mortgage industry players repeatedly warned the Federal Reserve, the Federal Deposit Insurance Corp. and other bank regulators during the housing bubble that the U.S. faced an imminent housing crash.

The trade group also mapped out the 15 states which faced "sudden increases in foreclosures" and "a downward spiral," including California, Florida and Nevada.

But bank regulators not only ignored the group's warnings, top Fed officials also went on the airwaves to say the economy was "building on a sturdy foundation" and a housing crash was "unlikely."

The letters, obtained by Fox Business, were sent in 2005 and 2006 before the housing bubble burst.

As it pleaded with bank regulators to stop subprime lending abuses, the Mortgage Insurance Companies of America [MICA] pointed out the red flags in analysis from the bank regulators' own staffers as well as the likes of Bear Stearns and Lehman Brothers, three years before these two Wall Street giants collapsed under the weight of bad mortgage bets.

But the fact that these lengthy warnings did not compel bank regulators to act raises serious policy questions for Congress and the White House, as they move to make the Federal Reserve the systemic risk regulator, when the Fed didn’t act to stop the biggest systemic risk of all.

The new revelations also may make it harder for Federal Reserve chairman Ben Bernanke to battle Congressional curbs on the Fed's authority over the banking system, and moves by members of Congress to have the Fed’s monetary policies audited.

Continued via link...


Excerpted section detailing Ben Bernanke's gross incompetence:

Bernanke Ignores Growing Problem

July 1, 2005: Bernanke, then President George W. Bush's Chairman of the Council of Economic Advisers, to CNBC: “…unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong…I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy.        

CNBC: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’

Bernanke: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

February 15, 2006: Bernanke said: "Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise, but not at the pace that they had been rising. So we expect the housing market to cool, but not to change very sharply…The weakness in housing market activity and the slower appreciation of house prices do not seem to have spilled over to any significant extent to other sectors of the economy."

January 2007: Bernanke speech before the American Economic Association in whereby he said “to make crises less likely over the years, the Federal Reserve has worked effectively with the Congress, other supervisors, and financial market participants to develop statutory regulatory and other measures.”

March 28, 2007: Chairman Bernanke said: “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

May 17, 2007: Chairman Bernanke said: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

February 27, 2008: Chairman Bernanke said: "By later this year, housing will stop being such a big drag directly on GDP…I am satisfied with the general approach that we’re currently taking."

February 28, 2008: Chairman Bernanke said: “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

July 16, 2008: Chairman Bernanke said that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”  Since then, Fannie Mae and Freddie Mac have received the largest taxpayer bailout and have been taken over by the federal government.