Page 6
The Banker’s Advocate
State Bank Department
DAY WITH THE COMMISSIONER
Origin of crisis traced to 1980s
Non-bank lenders
eased mortgage
terms, Low says
By Richard S. Plotkin
Editor
Chris Low, the chief
economist for FTN Fi-
nancial, says the current
financial crisis predates by
about one year the con-
tinuing recession and that
the credit “bubble” at the
core of the crisis began
forming in the 1980s.
Low expects the reces-
sion to end with a mild
recovery in the second
Arkansas Bankers Association
half of 2009, but he al-
UPDATE ON CONDITION: James Bul- cusses the U.S. financial system at Day With
ready is issuing a warning
lard, president and chief executive officer of The Commissioner in Hot Springs on May 1.
about the next recession.
the Federal Reserve Bank of St. Louis, dis- He was one of several featured speakers.
Low was one of the
featured speakers at Day
effectively respond.
ket.
“And that’s not to say
With The Commissioner
Among these events
“All of these things
that they’re not smart
at the Hot Springs Con-
identified by Low:
were so huge that nobody
guys, because they are.
had time to go back and
And it’s not to say that
vention Center on May 1.
 The subprime mort-
“It is a deep, severe re-
gage crisis.
figure out what it was that
they were understaffed.
they were actually fight-
You know, there probably
cession,” said Low.
 The distressed sale of
The financial crisis, Low
imploding investment
ing,” Low said. “This was
are 100 economists inside
said, erupted initially in
bank Bear Stearns to
a credit bubble that had
the Federal Reserve Sys-
the asset-backed commer-
JPMorgan Chase, sup-
burst.” Continued Low:
tem alone,” Low said.
cial paper market in early
ported by a $29 billion
“All the way through,
“The issue was that the
loan from the Federal Re-
when you listen to the
brushfires that were crop-
2007. The recession offi-
serve Bank of New York.
guys in charge, the people
ping up – the small ways
cially began months later who were cleaning up the
in which the financial cri-
– in December 2007, ac-
 The placing by the
Federal Housing Finance
mess and addressing the
sis was appearing on the
cording to the National
Agency of government-
problems and trying to
stage – were actually huge
Bureau of Economic Re-
sponsored enterprises
figure it out – whether it
in and of themselves.”
search, the private, non-
Fannie Mae and Freddie
was [Treasury Secretary
Low said that while
profit organization that
Mac into conservatorship.
Henry] Paulson or [New
there have been credit
dates business cycles. York Federal Reserve
“booms” and “busts” in
Low describes the fi-
 The Chapter 11 bank- the past, what is unusual
nancial crisis as a cascade
ruptcy filing by Lehman
Bank president Timothy]
about the current boom-
of high-impact events that
Brothers and subsequent
Geithner or [Federal Re-
to-bust cycle is that it has
occurred in a time line
corporate breakup of the
serve Board chairman
been propelled to a
that was so narrow it im-
financial services firm.
Ben] Bernanke – what you
heard was that they didn’t
greater degree by a bor-
paired the ability of the
rowing binge than by ag-
 The collapse of the really understand what
federal government to residential mortgage mar- was going on.
See LOW, Page 7
June 30, 2009
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10