In Ben Bernancke's new book he goes into detail about how the fed was tracking the housing market and they considered that the key data point to track to determine the health of the capital markets, and it is now clear why the Fed, Treasury and others missed what was happening. While the housing market is a key component of economic growth or failure, tracking the RMBS market was not a major part of what caused the crash. It was very clear to many of us who were deeply involved in the CMBS market in 2006-2007, that things there had gotten to the ridiculous, and that a crash was inevitable. Underwriting had all but gone out the window, loans were being made based purely on projections and at .98 debt cover. Mezz levels had reached as high as 95% in some cases, and there was a complete lack of pricing the risk properly. The pressure was on to fill large pools and to pump them out to the uninformed buyers in Europe and China. Pump and dump was the order of the day. The rating agencies became too loose under pressure from issuers and by 2007 we even had virtual loans going into pools. That was when I was certain the crash was inevitable.

The Fed apparently was not tracking any of this because it was not in a data base like housing prices and home mortgages. They could track CMBS issuance and bonds, but what they did not see nor understand was the underlying collapse of underwriting and covenants. Those are not in data bases that the fed or Treasury were looking at. It is the opaque part of the whole process that is not easily discernible from the outside. While there were quite a few of us older guys who started to warn of the risks in 2006, nobody wanted to hear it. Times for bankers were never better and bonuses were never larger. Life was great and why stop the train.