In prepared testimony before Congress last week, New York Governor Elliot Spitzer acknowledged that losses from the subprime crisis may threaten the U.S. economy. During his presentation, Spitzer pointed out that many were to blame for the subprime problem.
Spitzer complained that inadequate federal regulation of the mortgage markets and of the conversion of subprime mortgages into securities contributed heavily to problems in the U.S. economy. Spitzer pointed out that federal regulators should have been more proactive in dealing with the subprime situation and the abuses that occurred in the subprime market.
Governor Spitzer was also very critical of the “ratings agencies” for their role in rating subprime securities so as to make them appear safe, high quality investments. He called for greater scrutiny and oversight by the SEC.
Finally, Spitzer placed blame on state insurance departments. He noted that higher standards should have been set for insurance companies, some of which “may not have sufficient capital to cover the potential defaults.” The questionable viability of many of these bond insurers has shaken the credit markets in recent weeks.