Dr. Paul vs. Bernanke - The Final Chapter

[cheguevara]

Paul Rips Bernanke

http://politicalnews.me/?id=15770&ke...EDERAL-RESERVE

In what Congressman Bacchus called “a double dose,” Texas Representative Ron Paul grilled Fed Chairman Ben Bernanke on two occasions on Tuesday at the House Financial Services Committee. Congressman Paul scolded the Fed Chairman for being “secretive” while claiming that the financial crisis is “far from over…”

After facing a relatively tamer Senate Banking Committee, the Fed Chairman’s feet were held to the fire by Ron Paul & Co.

While the exchange was rather one-sided, Ron Paul made his points heard. He first criticized the Fed for equivocating independence with secrecy, noting that about $15 trillion had been used for overseas bailouts during the crisis, via currency swaps, which the Congress could not monitor.

Ron Paul then noted that when Bernanke claims the Fed stands ready to support Europe and other geographies during times of financial and economic crisis, it’s actually the American tax payer that is shouldering the burden. The Fed Chairman responded by noting that it is Congress which delegated the responsibility to manage monetary policy to the Federal Reserve.

While the Fed Chairman tried to avoid engaging Ron Paul, he did show his ideological bent when he told Ron Paul that while Congress could eliminate the statue the makes the Fed an independent body, it would result in a more inefficient central bank and ultimately a worse outcome.

[mercos]

the fed's playing with short term and long term interest rates caused the rates of ARMs to be record low and encouragedd ppl to take these risky loans in order to obtain property. That combined with the tax and other policies brought in ppl that normally would not be able to buy houses. Then in 2005-2007 as the Fed increased the rates, ppl started defaulting and thus the bubble burst.

I'll refute this. Low interest rates are not what encouraged people to take out risky loans. Lax lending standards that the banks themselves set is what allowed this to happen. Interest rates would have been irrelevant if banks made home buyers pay the traditional down payment figures. The banks waived this because they WANTED to give out as many loans as possible. There was a high demand for mortgage backed securities and CDOs that could only be filled by giving out more loans.

Now, you can argue that the Fed worsened this problem after the fact by bailing out all of these failing ins utions that should have been left to die. If the market were totally free, these large banks would have gone extinct. The same could be said about the federal government's bailout of the banks. However, to claim that the Federal Reserve caused the housing crisis is false.

[boutons_deux]

"encouragedd ppl to take these risky loans in order to obtain property"

bull . people can't "take risky loans" if lenders don't allow risky loans. Your hated Fed was NOT in the borrower/lender transaction.

mortgage interest rates are even lower now and people aren't taking risky loans because lenders are lending to only non-risky, aka fully qualified, borrowers.

even after the Fed raised the rates, the vast majority of solid borrowers didn't default. And many of the weak borrowers who never should have had a mortgage would have defaulted even if the Fed left the rates low.

[cheguevara]

I'll refute this. Low interest rates are not what encouraged people to take out risky loans.

disagree. It was ONE of the main reasons for ppl to take out risky loans

the FED propped up the housing market beyond sustainable levels. It was definitely a big reason for the entire bubble.

also it does not help that Greenspan at the time denied the existence of any bubble in housing. The HEAD OF THE FED was preaching that there was no issues as ppl were getting risky loans:

This week marks the fifth anniversary of then-Federal Reserve Chairman Alan Greenspan's observation that there was no housing bubble to worry about:

"Although a 'bubble' in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.... Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications."
http://realestate.aol.com/blog/2010/...e-years-later/

Fdrl Rsrv


truth is the FED got it so wrong, that any other agency would have been disbanded.

[cheguevara]

We can spend all day beating up Greenspan for a huge mistake five years ago, but a more constructive approach would be for us to learn from this experience and apply those lessons to Greenspan's replacement, Ben Bernanke.

We should ask him regularly the question nobody every asked Maestro Greenspan: "Why should we believe you?"