Bubble ben bernanke says low rates "DIDNT" cause bubble.

Discussion in 'Wall St. News' started by S2007S, Jan 4, 2010.

  1. S2007S


    Who is going to believe that worthless statement, this guy is just unbelievable, he really knows how to make up excuses. He has been lying for years about the downfall of this economy and he is still lying today. They are so worried about seeing GDP fall that they will do ANYTHING to prop the economy up to show growth, just like they are today with 0% rates and plenty of worthless monopoly money. People need to wake the fuck up and realize this is not how you fight a crisis. You don't fight a crisis by creating more debt, you don't fight a crisis by creating programs to slow foreclosures, you let the pieces of the puzzle fall where they must, you must let the free markets work out the problems on their own. Creating an environment that is fed with intervention is certainly not the answer, the only way they know how to create any wealth in this economy is through the creation of asset bubbles, there is no real organic growth left, everything is pumped and injected with liquidity to create what they believe to be a real economy. One day people will realize what they are doing today was not the right answer to the problem.

    Jan. 3, 2010, 11:00 a.m. EST · Recommend (16) · Post:
    Low rates didn't cause bubble, Bernanke says
    Lax supervision of toxic mortgages was bigger cause, Fed chief says

    Story Comments Screener (646)

    By Rex Nutting, MarketWatch

    WASHINGTON (MarketWatch) - The Federal Reserve had a role in inflating the housing bubble, but it wasn't low interest rates in the U.S. that fueled speculation in housing around the globe, Fed Chairman Ben Bernanke said Sunday.

    Rather, it was lax supervision of toxic mortgages by the Fed and other bank regulators -- along with excessive flows of capital around the globe -- that inflated the bubble, setting up the world economy for what may have been the worst economic crisis in modern history, Bernanke said.

    WSJ's Matt Phillips joins the News Hub with a look at what investors can expect from the market in 2010.

    In twin speeches at the annual meeting of the American Economic Association in Atlanta, Ga., Bernanke and his vice chairman, Donald Kohn, responded to critics who suggest that the Fed's policy of very low interest rates from 2001 to 2005 was the major cause of the housing bubble.

    "The magnitude of house-price gains seems too large to be readily explainable by the stance of monetary policy alone," Bernanke concluded in his speech. Comparisons with other major economies shows that countries with relatively higher interest rates had larger housing bubbles, he said.

    Bernanke conducted a kind of post-mortem on the housing bubble. Using historic relationships, he concluded that low interest rates were responsible for about 5% of the change in housing prices, while greater global capital flows explained about 30% of the change.

    The biggest cause of the bubble was exotic mortgages and the decline in underwriting standards, he said. Buyers were able to lower their initial monthly payments, which allowed prices to soar to unsustainable levels.

    "Both lenders and borrowers became convinced that house prices would only go up," Bernanke said. "Borrowers chose, and were extended, mortgages that they could not be expected to service in the longer term. They were provided these loans on the expectation that accumulating home equity would soon allow refinancing into more sustainable mortgages. For a time, rising house prices became a self-fulfilling prophecy, but ultimately, further appreciation could not be sustained and house prices collapsed."

    "That conclusion suggests that the best response to the housing bubble would have been regulatory, not monetary," Bernanke said. "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."

    Bernanke said the Fed and other regulators finally adopted rules to stop the worst practices, but "these efforts came too late or were insufficient to stop the decline in underwriting standards and effectively constrain the housing bubble."

    Raising interest rates to stop the bubble would have required the Fed to make a judgment about the sustainability of housing prices, something the central bank has been reluctant to do.

    Even if the Fed had decided the bubble should have been deflated earlier, raising rates in 2003 or 2004 "could have seriously weakened the economy at just the time when the recovery from the previous recession was becoming established," Bernanke said.

    In his speech, Kohn said raising interest rates now to prevent commodity price bubbles from developing would be ineffective and likely would damage the fragile economic recovery. Read the full text of Kohn's speech.

    Kohn said the economy is likely to grow more slowly than its potential for some time, while inflation is likely to be below the Fed's target of 2%.

    In this context, "tightening policy to head off a perceived threat of asset price misalignment could be expensive in terms of medium-term economic stability."

    "We do not have good theories or empirical evidence to guide policymakers in their efforts to use short-term interest rates to limit financial speculation," Kohn said.
  2. He's(Ben) technically right, and that's the best kind of right. The problem was the lack of enforcement of the regs, not the lack of regs. It was never the fed's job to regulate the mortgage industry, and frankly should never be their job. Someone does need to regulate these mid-tier lenders that wrote a shit-ton of option-only arms..... Time for a new govt. agency.
  3. As was mentioned in a good article on this forum, for a change, Asian thinking is much more dynamic. Its not one or the other its a combo effect. Both low rates and ridiculous loan standards created the problem in the US.. Why can't ppl. think? No one thing creates a problem or solution.

    Now I will have to ask my Irish relatives if they had ridiculous loan qualification standards and low rates since both Ireland and Spain just tanked RE wise.
  4. he'll get his comuppance right after this whole system completely implodes due to all his dumb ass meddling
  5. piezoe


    It's my understanding that regulation of the mortgage industry is very much the responsibility of the Fed. In fact Greenspan was warned numerous times of the developing problems in the mortgage industry and asked to use his authority and existing regulations to intervene. He dismissed the warnings and steadfastly maintained that the markets would self-correct. He was wrong, and the result of his inattention was financial disaster.
  6. a technicality.

    low rates for so long was at least 50% of the problem.
  7. achilles28


    Bernacke is lying.

    The real estate bubble would have NEVER happened if rates were held at 5-7%.
  8. kjreddy


    next statement from bernanke :

    housing never caused any crisis , infact there has been no crisis in the last 2 years
  9. Correctamundo! Look back 20 years.... Bonds yielded 8-9%, money markets were about 6-6.5%, passbook savings were a miserly 5.25%... and FNMA was able to securitize properly qualified and underwritten mortgage loans.

    What happend? FRICKIN' GOVERNMENT GOT GREEDY!!! And now look where we are... The BASTARDS!
  10. In theory.

    In reality, the Fed can only regulate Fannie to the extent Congress allows it to. nAnd if you can't regulate Fannie, you can't really regulate anything mortgage-related.
    #10     Jan 5, 2010