Is the fact that Ben Bernanke and others at the Federal Reserve consistently underestimated (and continue to underestimate) the impact of the housing collapse and mortgage crisis an indication that they hold a bullish bias against the possibility of impending calamity or simply a result of being caught between a “rock and a hard plate” in terms of public statements?
I, for one, think it’s the former and specifically NOT a little bit of both.
Clearly, the Fed is very careful in formulating public statements in an effort to put forward useful information without overly roiling the markets but I think had Bernanke held a more realistic view of the obvious outcome of the housing bust, he could have easily prepared expectations well in advance of the current meltdown we are now experiencing.
I’m certainly not suggesting that the role of the Fed Chair is to speculate far in advance of every possible impending crisis and attempt to engineer a sort of “wakeup call” to the markets but in the case of the Great Housing Bubble, I think his several, now incorrect, attempts to suggest a bottom had been reached was far worse.
For all its “smart money” bravado and perceived ivory tower-Ivy League expertise, I think many in Wall Street are naïve and have clung to the Feds mildly optimistic bias like a lifeline since the start of the housing decline.
Just listen to the hapless trader in this CNBC segment heap accolades on Bernanke for the liquidity injections, an action that should have been a surprise to no one.
Bernanke is simply following the game plan the Fed has had in place for decades… in fact, one in which he himself outlined in great detail in a 2003 speech on asset bubbles and monetary policy.
Too bad he may have squandered an opportunity to help instill in the markets a measure of reasonable caution well in advance of the now unequivocal crisis.
