What do you think?
Some experts point to Barney Frank as the cause of the subprime mortgage which turned into a full fledged housing crisis which has played a massive role in exploding the U.S. economy while other experts point to house flippers yet others point to the Fed for their holding rates down, putting the economy at risk.
Regardless of where you stand, hindsight is 20/20, right? Today, Ben Bernanke spoke to the American Economic Association and noted that at the time, the low interest rates were “appropriate” and defends what steps they took at the time (which implies that the Fed’s hands are clean when it comes to the crash).
Bernanke’s closing is telling in that he notes that caution and flexibility are key:
“That said, having experienced the damage that asset price bubbles can cause, we must be especially vigilant in ensuring that the recent experiences are not repeated. 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. However, if adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplementary tool for addressing those risks–proceeding cautiously and always keeping in mind the inherent difficulties of that approach. Clearly, we still have much to learn about how best to make monetary policy and to meet threats to financial stability in this new era. Maintaining flexibility and an open mind will be essential for successful policy making as we feel our way forward.”
Are you buying it? Did the Fed play a role or are their hands clean and the blame is to be placed elsewhere? 2010 will be the year of the “you caused the economic crash” blame game, this should be interesting to watch.