Monday, August 25, 2008

Reorganize the Federal Government

Here is the lead story in today's LA Times: "FBI saw threat of loan crisis ... A top official warned of widening mortage fraud in 2004, but the agency focused its resources elsewhere."

I recall that when Leslie Stahl interviewed Alan Greenspan on "60 Minutes", after he left office and was pushing his book, she asked him about the credit crunch and his answer was: "We didn't see it coming."

Many economists and others did write about the "housing bubble", but few if any linked the inevitable decline of housing prices to fallout into the wider credit markets. The WSJ had long been editorializing about Freddie/Fannie problems but most economists (and of course politicians) applauded the agency's efforts to expand howeownership.

Now we find that the FBI, which had hundreds of agents spend who-knows-how-many man-years on the anthrax investigation, only to have to pay millions of dollars in settlement because they had been hounding the wrong guy, and which drove another suspect to suicide (and we still do not know how strong that case is), was the one group that got the housing-credit mess right.

Reshuffle responsibilities? Give the FBI a stronger role in macro-economic analysis? Keep them from focusing too many resources on crime and terrorism? It's a thought.