Bernanke Says Low Rates Didn’t Cause Housing Bubble

[Joanne98]

Source: Bloomberg


Jan. 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank’s low interest rates didn’t cause the past decade’s housing bubble and that better regulation would have been more effective in limiting the boom.

“The best response to the housing bubble would have been regulatory, rather than monetary,” Bernanke said today in remarks to the American Economic Association’s annual meeting in Atlanta. The Fed’s efforts to constrain the bubble were “too late or were insufficient,” which means that regulatory actions “must be better and smarter,” he said.

Bernanke said the Fed is working to improve its supervision of banks and has strengthened measures to protect consumers of mortgages and other financial products. Senate Banking Committee Chairman Christopher Dodd, who backs Bernanke for a second term, has called the Fed’s oversight of banks leading up to the crisis an “abysmal failure.” Dodd proposes stripping the Fed and other agencies of bank supervision powers and moving them to a new regulator.

Scholars such as Allan Meltzer, a historian of the central bank, have criticized the Fed for helping fuel the housing boom by keeping interest rates too low for too long. The bursting of the housing bubble led to the worst recession since the Great Depression and the loss of more than 7 million U.S. jobs.


Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=auCLZh_HZf9E&pos=1

[bemildred]

1. Well, of course, nothing to do with it really, irrelevant, where did you get that idea anyway?

:sarcasm:

[Skink]

2. Maybe they wouldn't have had to make ridicoulus loans if prices remained realistic.

right now the banks could sell back a large percentage of already foreclosed homes to the original owners and those owners could afford to make payments on reasonable mortgages.

[seeinfweggos]

3. low interest rate are weren't the problem

loose and predatory lending practices were.

[kayla9170]

4. I agree with Brenanke.........

on this one

[girl gone mad]

9. Actually, low rates did contribute to the environment of excess speculation.

Low rates = lower monthly payment = higher home valuations + more qualifying buyers (people qualifying on lower incomes).

Lower rates also drew more marginal borrowers into the pool.

Rates were kept artificially low for too long post 2001. Higher rates would have helped cool the markets down a bit.

Bernanke left out key details.

[seeinfweggos]

23. but everything you mentioned are good things except lending to people with poor credit

more qualified homebuyers with lower incomes is good (as long as they can really afford it)

lower monthly payments is good

and i don't know what "artificially low" means since it isn't dtermined by the market anyway

[No Elephants]

14. There were many problems. No need for "either or."

[AllentownJake]

5. No low rates didn't cause the problem

They were fuel for a fire though.

[ozymandius]

6. I wish it were so damned convenient to point to one bogeyman.

But, in fact, it was a combination of factors. Let's start with the Federal Reserve's money pimping operation. Then we can move on to several different other factors: Like select stupid home appraisers, ratings agencies, greedy mortgage brokers, dumb and cavalier bank managers, bond insurers, crooked OCC officials, derivatives traders, over-leveraged banks...

The list is too long to mention in this one post. But Damn! Bernanke has it all figured out, doesn't he? And none of it is neither his nor his predecessor's damn fault? Nor the fault of the Federal Reserve Bank of New York?

Fuck him.

[PurityOfEssence]

13. Well said. Hell, it's fruit of the Reagan Era's deregulation.

And while I'm on the subject, I think we're STILL in the "Reagan Era" a despicable time that has encompassed my entire adult life, replete with a current President who has to gall to praise him.

It shouldn't take a genius to see how this happened, it's really quite simple.

1) Allowing loan originators to completely sell off obligations is a bad idea.

2) Loosening the verification of a borrower's true financial state is, at best, passive fraud on the part of the lender when fully intending to "sell" the obligation as something credible.

3) Using these bundles of fiction to create elaborate bets is of absolutely no benefit to most of mankind, only useful for sophisticated money-whores out to make a killing, and EXTREMELY dangerous to very existence of our financial systems.

4) Vilification of regulation is for criminals and fools; it's better to have an economy that's a little stodgier and safer than to risk our very existence so a few sharpsters can have unfettered opportunities to make more than ridiculous amounts of money.

Sheesh. How hard can this be to figure out?

[No Elephants]

15. Yep, too many to mention in one post,

[unkachuck]

7. "...low interest rates didn’t cause the past decade’s housing bubble..."

....of course low interest rate didn't cause the problem, Andreas' husband did....

[applegrove]

8. Bush put this man in office and he wants better regulations. I wonder if it will

sink into the minds of the intelligentsia on the right.

[blackbear79]

10. I wish current low interest rates would cause another bubble

I wouldn't even try to get greedy, I'd be happy to get out early.

[DallasNE]

11. Bernanke Is All Wet

Since he didn't outline what regulatory changes would have stopped the housing bubble from forming. Besides, the SEC under Cox failed to enforce existing regulation so that route was unavailable anyway. Likewise, the Fed under Greenspan was responsible for the tech bubble a decade ago because they failed to use their regulatory power by not decreasing the amount of money that could be borrowed on margin. Borrowed money fueled speculation on stocks right before prices crashed. It was not the lack of regulation, per se, that caused the bubbles but the lack of enforcement of regulation. People sworn to uphold the law simply refused to uphold the law. Since they have not been held accountable we can only expect similar problems in the future and more insincere calls for regulation.

[girl gone mad]

12. Not only that, but Bernanke lobbied against the Consumer Financial Protection Agency..

which would probably be the single best regulatory measure in the new reform bill, making impossible to believe he actually wants to be a regulator.

[No Elephants]

16. Why is this man still pontificating and why is anyone still listening?

[TheWatcher]

17. He's a Hero to a lot of well meaning, misguided folks around here.

They think he is a "Hero" who "saved us all from a Depression".

The bastard should be in JAIL.

[Odin2005]

18. I think he is half right and half wrong.

IMO it was that the interest rates were kept low TOO LONG, not the low rates themselves.

[AngryAmish]

19. The belief that everyone should be a homeowner also caused this bubble

bush believed that if someone owned a home it made them responsible, since homeowners are responsible. As we all know that is nonsense. One of the things responsible persons do is own a home. It is the responsibility that causes homeownership, not vice versa.

Renters rent for a reason.

[unblock]

20. it's not an either/or. interest rates were too low too long AND there was insufficient regulation

most great catastrophes have multiple causes.

[RUMMYisFROSTED]

21. "...better regulation would have been more effective ..."

Except Ben fought such proposed regulation at the time.

Typical.

[Javaman]

22. Thank you, Captain Obvious!

fuck you ben.

Thank you for closing the door to the clue factory after the obvious as been let out.