Bernanke saw ‘relatively soft landing’ in housing in 2006

Discussion in 'Economics & Trade' started by DA60, Jan 12, 2012.

  1. DA60

    DA60 Banned

    Joined:
    Feb 28, 2011
    Messages:
    5,238
    Likes Received:
    129
    Trophy Points:
    63
    'Federal Reserve policy makers watched all the signs of the pending housing apocalypse develop over the course of 2006, but disastrously failed to grasp the implications.

    Newly released transcripts of all the Federal Reserve policy meetings in 2006, Ben Bernanke's first year as chairman, show that the Fed was getting increasingly dire signals about the housing market - right down to anecdotes of builders giving away cars to try to draw reluctant buyers. But the economists around the table were consumed by trying to estimate what (small) percentage of consumer spending that would affect, missing the tremendous structural upheaval that a housing price decline would go on to create, with banks failing, the financial system seizing and job losses soaring.

    Instead, there was a preoccupation with inflation and rising oil prices.

    Surprisingly, from the regulator of the banking system, there was next to no discussion of the world of credit derivatives based on housing, nor of weak lending standards. In fact, quite the contrary, policy makers reported that bankers were telling them credit quality was quite good....'

    http://www.theglobeandmail.com/glob...ft-landing-in-housing-in-2006/article2300439/
     
  2. DA60

    DA60 Banned

    Joined:
    Feb 28, 2011
    Messages:
    5,238
    Likes Received:
    129
    Trophy Points:
    63
    From the top linked article:

    'GEITHNER: We believe that, absent some large, negative shock to perceptions about employment and earned income, the effects of the expected cooling in housing prices are going to be modest. Of course, this view may prove optimistic.'

    BERNANKE: Housing is the crucial issue. To get a soft landing, we need some cooling in housing. So far there is a good bit of evidence that there has been a peak, but we do not know a great deal more than that. So obviously we are going to have to watch carefully. The range of possible outcomes is quite wide. I agree with most of the commentary that the strong fundamentals support a relatively soft landing in housing.


    This is Geithner and Bernanke?!? Maybe the two most powerful economic people in America - if not the world?

    These are the people who America is depending upon to lead the largest economy in the World?


    These people are CLEARLY not NEARLY as economically smart as the VAST majority of people seem to think.

    In fact, they seem out of touch with reality...WAY out of touch.

    Absolutely pathetic.
     
  3. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    In 2006, the economy was doing well without any significant sign of inflation. Pursuant to its dual goals, the Fed (which had already increased interest rates substantially by 2006) maintained its policy of steady increases in the rate.

    But the Fed has no power to go in an start regulating mortgage practices. It did not have the power to police the no down, no income verification, teaser rate type loans that were all the rage that allowed people to buy houses way more than they could afford. It had no power to regulate the derivitive market that created the false impression that banks which bought securitized loans were fully protected on their investements by the likes of AAA rated AIG.,

    That regulatory power lied with the Govt, and mostly with the Bush administration. But Mr. Ownership society, coupled with the conservative attitude that businesses can police themselves and no regulation is good regulation, trusted the market to regulate itself.

    And we saw, just like we saw in 1929 with an unregulated stock market, the consequences of that.
     
  4. DA60

    DA60 Banned

    Joined:
    Feb 28, 2011
    Messages:
    5,238
    Likes Received:
    129
    Trophy Points:
    63
    Are you saying that if the Fed had raised rates aggressively (instead of tepidly, as they did) to a prime of 12, 14 or 16% that this on it's own would not have stopped the housing boom?

    Yes or no please?


    I have respect for your cognitive abilities...I cannot believe you actually think the answer to this question is 'no'.
     
  5. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    Yes. But it would have tanked the entire economy.

    And you'd be sitting here today (*)(*)(*)(*)(*)ing about how the Fed raised rates.

    Sure, by wrecking the entire economy they could have stopped the bubble. Maybe we hindsight we can say that would have been better. But I disagree the Fed should be going around wrecking the economy everything a market goes overboard.

    A far more effective method is to have effective regulation preventing the harmful behavior in that particular market.
     
  6. DA60

    DA60 Banned

    Joined:
    Feb 28, 2011
    Messages:
    5,238
    Likes Received:
    129
    Trophy Points:
    63
    It's not 'wrecking the economy' if they had not decided to help artificially stimulate the housing market by dropping rates so low.

    If the Fed had publicly said 'no' to this low income housing crap back in '01 and threatened Bush Jr. to raise interest rates if they started it up then the housing boom/bust would never have happened (or would have been a tiny fraction of how it turned out), imo.

    And America would not be in the mess she is in today...assuming the government did not find some other way to mess everything up.
     
  7. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    Please show where they ever "decided to help artificially stimulate the housing market"

    I am aware that they lowered rates in the early 2000s because of the economic slowdown and because inflation was within target levels.

    I am unaware their is any evidence the Fed lowered interest rates "to help artificially stimulate the housing market."

    Please cite any evidence of this you have, I'd very much be interested to see it.

    It's not the Fed's job to threaten the President with interest rate increases if they do not like Govt policy.

    Do you really think the Fed's power should be expanded in thsi way?

    If the Fed raised interest rates and tanked the economy because of the President's policy on housing you'd all be sitting here today (*)(*)(*)(*)(*)ing they did that and what an outrageous abuse of power that was.
     
  8. DA60

    DA60 Banned

    Joined:
    Feb 28, 2011
    Messages:
    5,238
    Likes Received:
    129
    Trophy Points:
    63
    I said Greenspan practically admitted it many times. I have never seen him openly admit it.

    And the fact he 'lowered' the prime to it's lowest level since 1958 at the exact same time that the one person who has the power to replace him (GWB) started to implement his low cost housing plan should be evidence enough of what was going on.


    And I think it is the Fed's moral responsibility to publicly state when they feel a policy of the federal government is potentially extremely harmful to the economy AND to change interest rates accordingly when a risk of inflation is present (which the housing boom threatened) which any idiot could have seen without blinders on back in '02-'03 when this lunatic low income housing idea started.


    You don't agree?

    That is your prerogative.
     
  9. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    Please cite. I'd be interested to see what he said.

    They were trying to stimulate economic growth that was in a slowdown?

    Easier said than done. Of course with hindsight everyting is crystal clear. It was not crystal clear back in 02-03. It was getting clearer by 05-06.

    But again, it is not in the Fed's powers to regulate an industry or market or to make its policy based on one.

    Your suggestion that the Fed should look more at particular markets or industry bubbles as opposed to the entire economy, is an interesting, and in fact, I think it is a proposition the Fed itself is considering.

    Do you think it is a moral perogative for the Fed to publicly state when they feel that a practice of a business or industry is potentially extremely harmful to the eocnomy and to change interest rates accordingly?

    Sure. Why would you think otherwise?
     
  10. DA60

    DA60 Banned

    Joined:
    Feb 28, 2011
    Messages:
    5,238
    Likes Received:
    129
    Trophy Points:
    63
    It was several years ago and I do not recall where.

    I withdrawal the statement until I find it...sorry.

    Try Google.
    No, only government policies that are harmful.

    But, if asked officially about ANY industry, I feel they should always answer honestly.

    And I believe interest rates should be set to fight inflation....nothing else.

    Never to stimulate the economy.
     
  11. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    Well we certainly have a disagreement about that.

    It's usually coterminus. A recession retracts demand and lending which leads to a decrease in the effective money supply lowering rates; while an overheated economy creates demand for created and inflationary rates which lead to higher rates to restrict the money supply.
     
  12. bacardi

    bacardi New Member

    Joined:
    Sep 12, 2010
    Messages:
    7,898
    Likes Received:
    129
    Trophy Points:
    0

    Bernacke is an ideot LOL
     
  13. Not Amused

    Not Amused New Member

    Joined:
    Jul 23, 2011
    Messages:
    2,175
    Likes Received:
    19
    Trophy Points:
    0
    Their lack of action didn't tanked the economy? ROTFL!

    Read up on the Taylor Rule.

    http://www.investopedia.com/articles/economics/10/taylor-rule.asp#axzz1jpEDDQPn

    That had been followed during the great moderation, then violated (by the Fed) in 2003.

    Using small corrections, as defined by the Taylor Rule, has less impact than large ones.
     
  14. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
     
  15. Not Amused

    Not Amused New Member

    Joined:
    Jul 23, 2011
    Messages:
    2,175
    Likes Received:
    19
    Trophy Points:
    0
    Yes, that worked well.....

    Taylor disagrees with you.

    http://www.econtalk.org/archives/2008/08/john_taylor_on.html

    In fact, all the other countries in trouble violated the Taylor rule.
     
  16. Oakchair

    Oakchair Banned

    Joined:
    Jan 15, 2012
    Messages:
    54
    Likes Received:
    2
    Trophy Points:
    0
    Low interest rates had nothing to do with the housing bubble and the following crisis. With higher rates the financial entities would of made the same loans, with the same shady practices.
    The fault of the housing bubble the crisis and the following recession falls entirely on the financial industry and the conservatives who deregulated it.
     
  17. squidward

    squidward Well-Known Member

    Joined:
    Jan 23, 2009
    Messages:
    37,112
    Likes Received:
    9,515
    Trophy Points:
    113
    rubin and clinton ?
     
  18. Not Amused

    Not Amused New Member

    Joined:
    Jul 23, 2011
    Messages:
    2,175
    Likes Received:
    19
    Trophy Points:
    0
    Way too simplistic.

    Low interest rates, high bank leveraging rates, too big to fail, the refusal to regulate derivatives, the complexity of mortgage backed securities, Fanny & Freddie's relaxed loan qualifications and demand for mortgage backed securities, the interconnectedness of the big financial institutions, government regulations creating a false sense of security, etc., etc., etc.
     
  19. DaveInFL

    DaveInFL Banned

    Joined:
    Jan 10, 2012
    Messages:
    179
    Likes Received:
    13
    Trophy Points:
    0
    Don't forget Carter. CRA started under Carter.
     
  20. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    Feel free to discuss why he disagrees. I'm not going to go through an entire one hour speech.
     
  21. Not Amused

    Not Amused New Member

    Joined:
    Jul 23, 2011
    Messages:
    2,175
    Likes Received:
    19
    Trophy Points:
    0
    There are weekly interviews, most with with economists starting in mid 2006 (about 270), I have listened to most of them once, several twice or more. Taylor has been in 4 podcasts, I only gave you the one where he specifically stated the Taylor rule worked when used, and it wasn't being used.

    He disagrees because the US avoided a major crash for 20+ years when it followed the rule, and crashed when they didn't. As did every other major country going through the same economic mess.

    You want more details - invest an hour.
     
  22. Iriemon

    Iriemon Well-Known Member Past Donor

    Joined:
    May 12, 2009
    Messages:
    82,348
    Likes Received:
    2,657
    Trophy Points:
    113
    Thanks but this is a discussion board, not a lecture series. If you want to summarize his points to discuss them, that's fine. If you don't, that's fine too.
     
  23. Not Amused

    Not Amused New Member

    Joined:
    Jul 23, 2011
    Messages:
    2,175
    Likes Received:
    19
    Trophy Points:
    0
    Where is the lecture?
     
  24. JamesDF

    JamesDF Banned

    Joined:
    Jan 19, 2012
    Messages:
    193
    Likes Received:
    3
    Trophy Points:
    0
    The single thing the CRA did was mandate that banks not discriminate against black people.
    The banks that were subjected to the CRA were banks who participated less in the loans that caused the crisis
     
  25. JamesDF

    JamesDF Banned

    Joined:
    Jan 19, 2012
    Messages:
    193
    Likes Received:
    3
    Trophy Points:
    0
    a) Banks didn't make fraudulent and irresponsible loans became of low interest, therefor low interest rate didn't contribute at all to the crisis.
    b) Fanny and Freddie didn't have relaxed loan qualification, in their standards were so high that they legally could not provide crappy loans. When looking at the data Fann and Fedie didn't participate in the loans that caused the crisis
     

Share This Page