The head of the Federal Deposit Insurance Corp. said Monday that the U.S. needs better lending standards and greater transparency in the markets to avoid a recurrence of the 2008 financial crisis.
FDIC Chairwoman Sheila Bair, speaking to an audience at the University of Kansas' Robert J. Dole Institute of Politics, said the U.S. needs to return to the sort of monetary values she learned while working at a Lawrence savings and loan after graduating from the university.
She recalled that customers weren't taking on too much debt, took pride in repaying their loans and saved for a rainy day.
"Those were great days in banking. I hope that when we come out of this crisis we reacquaint ourselves with those values," Bair said in a question and answer format presentation.
Bair, a native of Independence, Kan., said the financial crisis had its origins in the shadow credit markets that went unregulated despite their risk, preying on vulnerable Americans who quickly became in over their heads.
Larger institutions abandoned their traditional lending and investment values, Bair said, hoping to recapture some of the market share they were loosing to the shadow lenders.
Bair said she saw the evidence of such questionable practices in 2001 when lenders in Baltimore made mortgages that led homeowners quickly toward foreclosure. The homes where then snatched up at a low rate, she said, and resold at profit.
Credit was extended to individuals based their home equity, she said, meaning the more the home was worth, the bigger the loan and the more profit for the finance and mortgage firms. The cycle eventually burst, leading to the collapse of the housing market and recession.
"It was the cause of the crisis," Bair said. "We should have never let lending standards deteriorate. It's not rocket science."
She said some blame goes to institutional investors who should have questioned how their money was being used and the fees and compensation paid without justification.
http://moneynews.com/StreetTalk/KS-F...4/20/id/356237
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