"Commentary"-Questions & The Housing Crisis
Tuesday, March 25, 2008SUSIE GHARIB: In tonight's commentary, could asking the right questions have headed off the housing mess? Here's Alice Rivlin, senior fellow at Brookings and former vice chair of the Federal Reserve.
ALICE RIVLIN, SENIOR FELLOW, BROOKINGS: The housing crisis and the credit crunch are sad stories, full of unasked questions. Borrowers should have asked: how much will I pay when my adjustable rate goes up? Can I refinance without a penalty? Can I get a better deal if I shop around? Mortgage lenders should have queried: can this person make the payments? Have I verified her income? Investors in mortgage-backed securities should have demanded to know: how good are the mortgages in these pools? What will they be worth if housing prices fall? Who is paying this rating agency that says this is triple-A?
Sadder and wiser borrowers, lenders and investors -- some in overalls and some in suits -- now wish they had asked these questions. For the future, we need tighter rules for mortgage lending, especially in the sub- prime market, more public information about hedge funds and private equity funds and rules for rating agencies to prevent conflicts of interest. But regulation cannot eliminate greed and wishful thinking. Many participants in the housing boom and the securitization frenzy grabbed quick profits and didn't ask questions, because they didn't want to hear the answers. Avoiding future crises will depend less on regulation than on reining in myopic greed and recovering common sense. I'm Alice Rivlin.
