[Congressional Record (Bound Edition), Volume 158 (2012), Part 1]
[House]
[Pages 70-71]
[From the U.S. Government Publishing Office, www.gpo.gov]




      EVEN WITH WARNING SIGNS, BERNANKE FAILED TO SOUND THE ALARM

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Florida (Mr. Stearns) for 5 minutes.
  Mr. STEARNS. Mr. Speaker, our economy today continues to suffer after 
shocks from the biggest financial meltdown since the Great Depression. 
Today we understand a series of mistakes were made in the past decade 
which led to our current financial crisis.
  Now the Financial Crisis Inquiry Commission, FCIC, was given the task 
to investigate the causes of the meltdown of our financial 
institutions. Though the commission was unsuccessful in reaching a 
certain consensus of the exact cause, they did, however, conclude that 
the financial crisis was avoidable and was the result of the following 
factors, an explosion in risky subprime lending, an unsustainable rise 
in housing prices, widespread reports of egregious and predatory 
lending practices, dramatic increases in household mortgage debt, and 
exponential growth in financial firms' trading activities, unregulated 
derivatives, and short-term repo lending markets, just among a few of 
the red flags. Surely with all those factors Chairman Bernanke should 
have been more concerned.
  In fact, the title of my speech this morning is, ``Even with Warning 
Signs, Bernanke Failed to Sound the Alarm.'' In fact, he was warned by 
members of the Federal Reserve Board often. The release of transcripts 
from the Federal Open Market Committee, FOMC, meetings in 2006 shed 
light on the critical failures of the Federal Reserve and Mr. Bernanke 
to act when the warning signs were clear and present. The first 
meeting, however, was spent praising Bernanke's predecessor, outgoing 
Federal Chairman Alan Greenspan. But the FCIC later concluded that 30 
years of deregulation and reliance on self-regulation by financial 
institutions that was championed by Mr. Greenspan were the factors in 
devastating the stability of our Nation's market, stripping away 
safeguards that simply could have avoided this catastrophe.
  Now in a later meeting on May 10, 2006, of the FOMC, then Fed 
Governor Susan Bies was one of the earliest to raise concern over the 
Nation's mortgage sector, which offered exotic loans that increased 
household debt over time instead of decreasing it. Now, specifically, 
her concerns stem from the absence of home equity growth, and the 
consumer's ability to absorb the uncertainties of the housing market. 
Listen to Mr. Bernanke's response when she made her declaration. ``So 
far we are seeing, at worst, an orderly decline in the housing market; 
but there is still, I think, a lot to be seen as to whether the housing 
market will decline slowly or more quickly.''
  Yet again another colleague, then Fed Vice Chairwoman Janet Yellen, 
warns of the possibility of ``an unwelcome housing slump.'' But in the 
meeting of August 8, 2006, Chairman Bernanke remains hopeful in his 
prediction for a ``soft landing'' for our economy. Need I say the 2008 
Great Recession was not a soft landing? In the September meeting, the 
Feds still remained oblivious to the detrimental effects in the housing 
market that will affect the rest of the economy.
  In the last meeting, Mr. Speaker, of the FOMC, Fed Governor Bies 
again, in December 2006, stated once again her concern of the housing 
market, stating that mortgages securitized in the past few years 
warrants additional risk than the investors have been focusing on. 
Despite the concerns that reported increased difficulty getting 
mortgages in their region, as well as a noticeable cool down in housing 
activity, Mr. Bernanke fails to see the warning signs and, again, 
predicts a soft landing on December 12, 2006, once again. This was his 
second statement of a soft landing in the same year.
  It was the failure of Mr. Bernanke to not pursue possible 
vulnerabilities and assuring us to the contrary that attributed to the 
economic crisis that we faced. On February 15, 2007, he stated 
``Overall economic prospects for households remains good. The labor 
market is expected to stay healthy. And real incomes should continue to 
rise. The business sector remains in excellent financial condition.'' 
Again, on March 28, 2007, he stated, ``The impact on the broader 
economy and financial markets of the problems in the subprime markets 
seems likely to be contained.'' Even on May 17, 2007, despite concerns 
raised by Fed Governor Bies again, he said, ``We do not expect 
significant spillovers from the subprime market to the rest of the 
economy or to the financial system.'' How wrong he was. But all of the 
dire warning signs were there.
  At Bernanke's confirmation hearing in the Senate Banking Committee, 
he conceded to the notion that the central bank ``should have done 
more.'' That's an understatement. The Fed had the authority and 
necessary power to prevent further abuses happening in the financial 
industry, but simply chose to ignore critical warning signs. Bernanke

[[Page 71]]

agrees he missed the warning signs, but thinks he can prevent a further 
crisis. Mr. Speaker, I'm not sure that he, being Chairman, is going to 
prevent a further crisis and, frankly, I'm sure he failed to sound the 
alarm of the 2008 Great Recession.

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