The Federal Reserve Bank of Kansas City loves to tell its story.
Last summer, the bank's public affairs department published a commemorative history, Confidence Restored. The bank also commissioned a film. It's a fancy production. In addition to generic images of Midwestern values (horseback riding, ball games), local actors portray the long-dead governors and businessmen who made Kansas City seem like a sensible place to put a branch of the nation's central bank.
The book and film stress that the Federal Reserve System has gained wisdom for having a presence in rock-solid middle America. In the book's foreword, Thomas Hoenig, the president of the Kansas City Fed, says community input ties "the Federal Reserve to the nation's Main Streets, preventing it from becoming an isolated, insulated, Washington-based institution." In the film, a KC Fed official gets out of her car and meets a farmer in his field.
Yet here we are: the age of confidence destroyed.
The Federal Reserve has come under criticism for fueling the housing bubble. As home prices soared, the Fed kept interest rates low, enticing homebuyers to take on vast quantities of debt. Alan Greenspan, former chairman of the Federal Reserve, even encouraged borrowers to take out adjustable-rate mortgages, the personal-finance equivalent of running with scissors.
An economy built on people selling houses to one another doesn't hold much future. Borrowers began to default on their tricked-out mortgages in 2006. Eventually, the credit market seized up as the mortgages, which had been bundled and sold as "collateralized debt obligations," spread toxins throughout the financial system.
In Greater Kansas City, signs were evident that real estate and lending had taken turns for the unsustainable. Mortgage sharps were getting dragged into court. Newspapers carried stories about subdivisions where foundations cracked not long after moving trucks had left.
A few notable moments:
March 1, 1999: The Kansas City Star publishes a lengthy story about the proliferation of subprime lenders. According to the findings, 15 of the top 20 lenders in Kansas City's minority neighborhoods specialize in nonconforming loans.
August 15, 2000: Missouri Attorney General Jay Nixon accuses an Overland Park homebuilder, Jeffrey Miller, of doing shoddy work and misleading buyers. Nixon's lawsuit also asserts that Miller forged documents and operated without a license.
February 27, 2003: TheStreet.com publishes a column by Herb Greenberg questioning the health of NovaStar, a Kansas City-based subprime mortgage lender. Greenberg notes that the company lacks a chief financial officer and uses aggressive accounting to pad its earnings. In the March 31 issue of Fortune magazine, Greenberg details NovaStar's reliance on opaque financial instruments, like "swaps."
May 22, 2003: A cover story in The Pitch describes the activities of Brent Barber, a property flipper who obtains loans based on phony home appraisals. A lawyer for one duped investor calls Barber's schemes "fraud with a capital F."
April 12, 2004: The Wall Street Journal publishes an unflattering story about NovaStar's culture of aggressive growth. The article describes how the company gave mortgage brokers a flier encouraging them to "ignore the rules" and qualify more borrowers with NovaStar's "credit score override program."
August 12, 2004: A federal grand jury indicts Barber on charges that he and three others defrauded Ameriquest Mortgage. Barber will be indicted twice more in the next six months. After one case brings a guilty verdict, Barber eventually pleads guilty to more than 100 felony counts.
January 2005: Three in 10 mortgages issued in Greater Kansas City in 2004 carried adjustable rates, according to statistics gathered by the Federal Housing Finance Board. Kansas City borrowers take out larger loans (relative to sale price) than homebuyers in all but four major metropolitan areas — Houston; Little Rock, Arkansas; Dallas; and Rochester, New York.
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And where was the SEC in your Kansas Banks during the last administration?
http://www.housingwire.com/200...
And where was the SEC in your Kansas Banks during the last administration? http://www.housingwire.com/2009/02/20/in-the-crosshairs-security-savings-bank/
The FED deserves more blame than the MSM has assigned to it.
I hope more people will show up to protest the Federal Reserve on 4/25/09; see http://endthefed.us/ for more information.
The FED deserves more blame than the MSM has assigned to it. I hope more people will show up to protest the Federal Reserve on 4/25/09; see http://endthefed.us/ for more information.
I'm glad you listed some cases that were early warnings that the real estate and mortgage industries were out of control, e.g. Jeffrey Miller. IMO our elected officials and who knows how many people in law enforcement and govt agencies, are in cahoots w/these industries, otherwise why would they ignore rampant mortgage fraud, homebuilder fraud, etc. What is really astonishing is that one of the early warnings came from the FBI itself, which found in about 2004 that this problem was so big it could cause an economic disaster--AND it found that the industry was doing most if it! There is no excuse for the greed and crime that took place and no excuse for these industries to now benefit from the ridiculous bailout just passed in congress. These people should be going to jail, not getting a gift from us.
I'm glad you listed some cases that were early warnings that the real estate and mortgage industries were out of control, e.g. Jeffrey Miller. IMO our elected officials and who knows how many people in law enforcement and govt agencies, are in cahoots w/these industries, otherwise why would they ignore rampant mortgage fraud, homebuilder fraud, etc. What is really astonishing is that one of the early warnings came from the FBI itself, which found in about 2004 that this problem was so big it could cause an economic disaster--AND it found that the industry was doing most if it! There is no excuse for the greed and crime that took place and no excuse for these industries to now benefit from the ridiculous bailout just passed in congress. These people should be going to jail, not getting a gift from us.
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