by Calculated Risk on 3/10/2010 04:03:00 PM

From the WSJ: Financial Crisis Panel to Grill Greenspan

Greenspan is scheduled to testify before the Financial Crisis Inquiry Commission in early April. This might be the one real opportunity to understand why regulators missed the lending problems.

Hopefully the Commission will ask about regulatory oversight (and lack thereof). We already know from various Inspector General reports that Fed and FDIC field examiners were expressing significant concerns in 2003 and 2004. What action did Greenspan take at that time with those reports? Put them in a drawer?

Why wasn't action taken earlier to tighten lending standards? Was Greenspan concerned about the "widespread" innovation in the mortgage industry (automated underwriting, reliance on FICO scores instead of the 3 Cs - creditworthiness, capacity, and collateral, agency issues with the widespread use of independent mortgage brokers, expanded securitization, non-traditional mortgage products, etc.)? When lending booms, methods change, and standards weaken - isn't that when the regulators need to be the most vigilant?

Unfortunately the WSJ article discusses "subprime" and Fannie and Freddie - and misses all the key issues.