An account of Fed mistakes

Binyamin Appelbaum and David Cho have a nice write-up on where Fed went wrong in this crisis.

This one takes the cake:

In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.

The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.

“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.

“I would have to say California,” said the economist, Richard Dekaser.

“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.

This time the warnings were correct, and the collapse of the California real estate market would bring down the nation’s fourth-largest bank, the largest casualty of the financial crisis.

Complacency at its best (or worst??)

Krugman says he has lost more respect for his ex- head of department (i.e. Bernanke). THough, Bernanke has surely helped avoid second great depression, the initial errors and ignorance is grave.

Felix Salmon has a nice summary as well.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: