I thought the (Roundup, June 4) letter by Terry Putnam was outstanding. Terry has obviously done his homework, particularly the detail on the Federal Reserve’s less than outstanding performance on its primary mission, cushioning the business cycle.
If the Federal Reserve can’t do any better at what they are already commissioned to do, why should we give them more regulatory power?
From what I can gather, the recent real estate fiasco got a running start when Franklin Raines was in charge of the Boston Federal Reserve, and then grew like cancer when he was sent to run Fannie Mae, egged on by Barney Frank.
If we want to see that the recent run-away-real-estate market is not repeated we should be concentrating on Fannie Mae and Freddy Mac, and make it clear to all, that the federal government is no longer responsible for their infantile foolishness.
Anyhow, I called Terry and asked if he had given copies of this letter to anyone who could do something about it? He said he hadn’t, but gave me permission to do so. This letter is the result.
Terry and I want a number of your Washington cohorts to know that we don’t blame Wall Street, or the bankers, as much as we do over-regulation in Washington. Really, the bankers reluctantly started out to do what the various federal government agencies had mandated them to do: Issue mortgages to people that wouldn’t receive them under sound economic scrutiny.
However, when Fannie Mae and Freddy Mac gladly accepted any mortgage that could imaginatively be dragged in, and when the government designated rating agencies, gave triple AAA ratings to “bundled” individually worthless mortgages, we were off to the races.
In other words, when a regulated system can be gamed, and the regulators set it up to hold the players harmless, don’t blame the players. Rather, do away with the regulators and regulation, and let the market reward or punish.
Terry and I, and a lot of others, are really watching to see if anyone in Washington has learned anything from their last round of mistakes.