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View Diary: Ben Bernanke Says He's Sorry, And He Won't Do It 'Again' (220 comments)

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  •  This won't be popular here (5+ / 0-)
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    tmo, joynow, shrike, poxonyou, IL JimP

    but Krugman, cited here, was for Bernanke's reappointment, and Stiglitz said it was a close call.

    The chart, from Krugman's blog below, shows why.

    When I read posts like this, I have three reactions:

    1.  They confuse the Fed's regulatory responsibility with Treasury's and the SEC's.  Fundamentally this crisis was caused by a lack of transparency.  Ensuring transparency is largely the job of the SEC.  Treasury  is also responsible for the application of banking laws on large commercial banks.
    1.  It is an often repeated argument here that Greenspan caused the housing bubble because of excess liquidity.  This is essentially a right wing argument that seeks to shift responsibility from the markets.  But the real source of the crisis was not that there was too much liquidity.  After all, job creation and job growth were minimal throughout this period.  To argue there was too much liquidity is to argue that we should have had a recession far earlier.  It is an easy argument to make now, but when you examine it the argument doesn't stand up.  The real problem was not liquidity, but credit standards.
    1.  The fundamental problem was that the markets did not price the risk on mortgages correctly.  Part of the reason they all made the same mistake is because the financial system is far too centralized.  This centralization creates systemic risks.  More importantly, the centralization makes regulation effectively impossible, for some of the reasons outlined is this diary.  

    I would be against Bernanke's appointment, but not for the reasons articulated here.   First, as a conservative he will use his influence to force attention to the deficit too early.  Second, he still has not learned the lesson of this crisis.  The role of the capital markets is to allocate capital.  This function has nothing with high speed trading, or any of the other exotic activities Wall Street engages in.  Moreover, he does not understand that the current methods of accounting make it impossible to truly understand the balance sheets of many of the financial institutions.  This lack of transparency makes the regulation of systemic risk impossible because you cannot regulate what you do not know exists.

    From Krugman:
    Photobucket

    The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

    by fladem on Sat Nov 28, 2009 at 10:44:28 AM PST

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