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From The Economist, 03/18/10
It wasn't us: Alan Greenspan and Ben Bernanke still do not believe monetary policy bears any blame for the crisis
http://www.economist.com/node/15719180
'The desire to rescue a damaged reputation is a powerful motivator. That is one conclusion to draw from a new 48-page paper written for the Brookings Institution by Alan Greenspan, the 83-year-old former chairman of America’s Federal Reserve...The most combative section in Mr Greenspan’s paper—arguing that monetary policy in the early 2000s was not a cause of the housing bubble—is strikingly similar to a speech given by Mr Bernanke at the American Economics Association’s annual meeting in January...
There is something odd about central bankers denying any responsibility at all for long-term rates, which are, in principle, based partly on an assessment of a stream of short-term rates. Nor is it clear that low short-term rates were as irrelevant as Messrs Bernanke and Greenspan suggest. Jeremy Stein of Harvard University, a discussant of Mr Greenspan’s Brookings paper, points out that low policy rates may have mattered a great deal for income-constrained borrowers. He points out that adjustable-rate mortgages were used much more in expensive cities, a trend that became more pronounced as the fund rates fell.
By looking only at the effect of monetary policy on house prices, Messrs Bernanke and Greenspan also take too narrow a view of the potential effect of low policy rates. Several economists have argued convincingly, for instance, that low policy rates fueled broader leverage growth in securitised markets.
Monetary policy may be a blunt tool to deal with asset bubbles. But that does not mean it is irrelevant. Interestingly, one American central banker has a more nuanced view, arguing that “in the current episode, higher short-term interest rates probably would have restrained the demand for housing by raising mortgage interest rates…In addition, tighter monetary policy may be associated with reduced leverage and slower credit growth.†That was Janet Yellen, president of the San Francisco Fed, who is likely to be Mr Bernanke’s new vice-chairman. With luck, she will prompt her boss to have a rethink.'
(Janet Yellen did indeed become Vice Chair of the Board of Governors of the Federal Reserve System, but has yet not prompted a Bernanke "rethink".)
Bernanke Says Promoting Financial Stability Is Key Fed Role
By Joshua Zumbrun and Daniel Kruger
http://www.bloomberg.com/news/2012-04-13/bernanke-urges-greater-focus-on-promoting-financial-stability.html
'Responding to audience questions after the speech, Bernanke said evidence is “weak†that low central bank interest rates contributed to the housing bubble.'
In the oft misquoted words of the immortal Mandy Rice-Davies, "Well, he would say that, wouldn't he?"
http://en.wikipedia.org/wiki/Mandy_Rice-Davies
Mandy Rice-Davies (born 21 October 1944), is a British former model and showgirl best known for her role in the Profumo affair and her association with Christine Keeler, which discredited the Conservative government of British Prime Minister Harold Macmillan in 1963...While giving evidence at the trial of Stephen Ward, charged with living off the immoral earnings of Keeler and Rice-Davies, the latter made a famous riposte. When the prosecuting counsel pointed out that Lord Astor denied an affair or having even met her, she replied, "Well, he would, wouldn't he?" (often misquoted as "Well he would say that, wouldn't he?"). By 1979, this phrase had entered the third edition of the Oxford Dictionary of Quotations.
#housing