Fed Missed This Bubble. Will It See a New One?

[groovedaddy]

If only we’d had more power, we could have kept the financial crisis from getting so bad.

That has been the position of Ben Bernanke, the Federal Reserve chairman, and other regulators. It explains why Mr. Bernanke and the Obama administration are pushing Congress to give the Fed more authority over financial firms.

So let’s consider what an empowered Fed might have done during the housing bubble, based on the words of the people who were running it.

In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise major concerns.” In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

The fact that Mr. Bernanke and other regulators still have not explained why they failed to recognize the last bubble is the weakest link in the Fed’s push for more power. It raises the question: Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?

http://www.nytimes.com/2010/01/06/business/economy/06leonhardt.html?th&emc=th

[ixion]

1. failed to recognize? No freakin' way. Consciously failed to acknowledge the bubble? You betcha.

Ben belongs behind bars.

[groovedaddy]

2. Greenspan did the same number..."We didn't think they (the financial industry) would do what they

did." After treating people with disdain who were sounding the alarms.
Congress should set the monetary policy of our nation, not a private entity that clearly will cover for criminals.

[wuvuj]

3. A bought and paid for Congress?

...might as well let a group of banks set monetary policy...oh...they already thought of that?

[roamer65]

4. No. The Fed always takes the "punchbowl" away too late.

[kerrywins]

5. Missed? The Federal Reserve Creates Bubbles

and then pops the hell out of them.

And then blames it on the free market.

[golfguru]

6. A few years back the easiest game in town to make money was

to offer a mortgage loan to any joe-6-pack who walked in.

Every body was offering loans with no down payment. It kept
the bubble growing.

Banks were not afraid since house prices went up year after year.
If the owner defaulted, they could sell the house at profit.

And there was Fannie May & Freddie Mac always there to sponge off
any contract no one wanted to keep.