From Calculated Risk:
Geithner: “For something this big and damaging to happen it takes a lot of mistakes over time. And it is that combination of things. Interest rate here and around the world were kept too low for too long. Investors made – took a bunch of risks without understanding the risks. They were betting on the expectation that house prices would continue to go up – to go up forever. Rating agencies failed to rate these products adequately. Supervisors failed to underwrite loans with sufficiently conservative standards. So those basic checks and balances failed. And people borrowed too much. It took all those things for it to happen.”
CR Note: (short transcript by CR). Although there were many factors in the housing and credit bubble, the two keys were: 1) rapid innovation in the mortgage industry (securitization, automated underwriting, rapidly expanded wholesale lending, etc), and 2) a complete lack of oversight by regulators. As the late William Seidman wrote in his memoir (published in 1993):Â “Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.”
Geithner failed to mention the rapid changes in lending and the failure of government oversight as the two critical causes of the bubble. Either Geithner misspoke or he still doesn’t understand what happened – and that is deeply troubling.
Geithner is a tool, a bureaucrat in an agency that has experienced regulatory capture. His professional stance, and what is good for the short-term interests of the agencies he regulates, are generally one-in-the-same.