*My issue with economist' is that they lack vision past their self inflicted ivory tower nose jobs. You are THE central banking regulator in the WORLD! Hellooooooo! Lack of power, are you kidding? You could have told the banks no more risk period and taken over Lehman and AIG without congress even sneezing over it you spineless weasels. How irresponsible is it to think that its a good thing that house prices should just keep going up up and away? I cannot express my utter sorrow over the lack of genius from the smartest guys in the room that have managed to WRECK my country and still have no clue about what they've done. Its just outrageous. A little humble pie can go A LONG LONG way. Someone should be going to jail over this mess and until that happens, americans will continue to get STUPID IJIOT Pubbys to clamor on Fox TV about the excesses of the likes of Barney Frank et al and how its the jackass' and poor people who have ruined our financial system. Nevermind that Pubbys had an equal say if not more so (Phil Gramm deregulation ring a bell?) in what led up to the financial mess of the millenium. They are all saying its Obamas mess now and they would be right.
So Mr. President, since you are likely to be a one term boy wonder, start getting some cohones and tell these two where to stick their hubris selves and get on with re regulating the banking system in a way that considers main street first.
Fed Missed This Bubble. Will It See a New One?
By DAVID LEONHARDT of nytimes.com
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?
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?
When Mr. Bernanke is challenged about the Fed’s performance, he often points out that recognizing a bubble is hard. “It is extraordinarily difficult,” he said during his Senate confirmation hearing last month, “to know in real time if an asset price is appropriate or not.”
Most of the time, that’s true. Do you know if stocks will keep going up? Is gold now in the midst of a bubble? What will happen to your house’s value? Questions like these are usually an invitation to hubris.
But the recent housing bubble was an exception. By any serious measure, houses in much of this country had become overvalued. From the late 1960s to 2000, the ratio of the median national house price to median income hovered from 2.9 to 3.2. By 2005, it had shot up to 4.5. In some places, buyers were spending twice as much on their monthly mortgage payment as they would have spent renting a similar house, without even considering the down payment.
More than a few people — economists, journalists, even some Fed officials — noticed this phenomenon. It wasn’t that hard, if you were willing to look at economic fundamentals. You couldn’t know exactly when or how far prices would fall, but it seemed clear they were out of control. Indeed, making that call was similar to what the Fed does when it sets interest rates: using concrete data to decide whether some part of the economy is too hot (or too cold).
And Fed officials could have had a real impact if they had decided to attack the bubble. Imagine if Mr. Greenspan, then considered an oracle, announced he was cracking down on wishful-thinking mortgages, as he had the authority to do.
So why did Mr. Greenspan and Mr. Bernanke get it wrong?
The answer seems to be more psychological than economic. They got trapped in an echo chamber of conventional wisdom. Real estate agents, home builders, Wall Street executives, many economists and millions of homeowners were all saying that home prices would not drop, and the typically sober-minded officials at the Fed persuaded themselves that it was true. “We’ve never had a decline in house prices on a nationwide basis,” Mr. Bernanke said on CNBC in 2005.
He and his colleagues fell victim to the same weakness that bedeviled the engineers of the Challenger space shuttle, the planners of the Vietnam and Iraq Wars, and the airline pilots who have made tragic cockpit errors. They didn’t adequately question their own assumptions. It’s an entirely human mistake.
Which is why it is likely to happen again.
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