Tuesday, January 5, 2010

Bernanke Says Fed Not to Blame For Real Estate Bubble

In Federal Reserve Chairman Ben Bernanke's Alice in Wonderland style of thinking, the Fed was not responsible for the recent real estate bubble or its popping. He actually blames unnamed "policymakers" for the whole problem. In fact, he went so far as to defend the disastrous financial decisions of his predecessor, the former illustrious and now widely discredited "Maestro" Alan Greenspan, who gave us not one but two ruinous financial bubbles in less than six years.

When I saw his speech all I could think was "It must be April 1st and Bernanke is kidding."

And I'm not the only one who thinks so.

Reprinted below is an excellent editorial from the Dallas Morning News. They are right and so are so many others calling for his resignation or better still, non-appointment.

Bernanke has become a joke in the financial world for his inept handling of the sole job he has, managing the currency of the United States. His public statements have become increasingly weird and out-of-touch as time goes by and we can't afford that in a Fed Chairman right about now. I'm sure he is a nice man who likes dogs and children but he has proven he cannot be trusted to manage the economy of the United States.

Remember it was Ben Bernanke himself in October 2005 while he was Chairman of the Council of Economic Advisors under President Bush and nominated to the Chair of the Fed that he stated without any doubt that "there was no housing bubble" and I quote:

"House prices are unlikely to continue rising at current rates. A moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year."
Really? This in October 2005? Exactly how moderate was that housing cooling anyway and its effect on U.S. GDP?

Congress now wants to reappoint Bernanke to another term at the Fed and also strip the Fed of some of its independence. Just what the country needs. A weakened Bernanke at the helm of a damaged ship actually steered by politicians in Congress with reelection on their minds.

Bernanke blaming Congress for the real estate bubble reminds me of the old Capitol Hill saw which goes:

Don't blame you.
Don't blame me.
Blame that fellow
Behind the tree.

Robert J. Abalos, Esq.


Editorial: Congress shouldn't follow Bernanke's mistakes

Federal Reserve Chairman Ben Bernanke would have been more persuasive in his condemnation of financial regulatory failures this past weekend had he included the central bank's mistakes in his criticism.

In his words

Excerpts from a speech by Federal Reserve Chairman Ben S. Bernanke to an economics conference Sunday in Atlanta:

"Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates."

"The lesson I take from this experience is not that financial regulation and supervision are ineffective for controlling emerging risks, but that their execution must be better and smarter."

"All efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs."

What's The Big Story? Find out atdallasnews.com/opinion

Blog: Opinion

Speaking in Atlanta to the American Economic Association, Bernanke blamed unnamed "policymakers" for failing to control risky underwriting and lending practices. He also deflected criticism that the Fed's decision to keep interest rates low contributed to excessively risky financial practices and, in turn, the global economic meltdown.

Indeed, the Fed did move too slowly to head off the crisis and deserves blame for interest-rate policies that helped fuel the housing bubble. Fed officials also didn't understand the risks posed by firms such as Citicorp, which made massive investments and didn't set aside enough money to cover losses. Nor did the Fed quickly recognize that the subprime housing crisis would spread wildly. For example, in 2007, Bernanke saw no lingering problem in subprime lending markets and insisted that economic downturns would be less frequent than in the past.

While he has since done a yeoman's job rescuing the economy, some of the key warning signs had festered for years within the sight of regulators who lacked the power or the will to intervene.

While it's tempting to take the Fed to the wood shed, Congress should not use its mistakes as an excuse to limit the agency's independence and authority to intervene in future financial crises. The House recently passed a provision to audit the Fed; other measures under consideration would either weaken it or compromise its independence. Such restrictions would be major setbacks for financial reform and unnecessarily subject the Fed and economic policy to the partisan whims of Congress.

The Fed's vast organization is best positioned to deal with the complexities of the global financial system. So it must be givenincreased authority to review practices and institutions that could pose major threats to the economy. Only then will there be a procedure in place to close the regulatory chasm and silos that contributed to the current recession.

The Fed was part of the problem; its greater independence is part of the solution.