Some People Did See it Coming
As proof that the Fed caused the housing bubble, I offer a commentary that I wrote in May of 2004 and which was published as an opinion piece in the Orange County Register.
You can read the entire commentary here.
However, let me reproduce some key quotes:
That so many are currently opting for ARMs reflects a level of real estate speculation unparalleled in American history. Homebuyers have been lured into this foolish choice by… a Fed chairman desperate to keep the real estate bubble inflating. Unfortunately, the longer the Fed remains “patient” with regard to raising short-term interest rates to appropriate levels, the more homeowners that will be lured into the ARM time bomb.
The real losers in this whole fiasco are likely to be those who did not even participate in the mania. As over-leveraged borrowers walk away from properties in which they have no equity, the Fed will most likely attempt to bail out both debtors and bank depositors (and the government-sponsored enterprises that insured the loans) with the most inflationary monetary policy ever undertaken in the history of central banking. The savings of an entire generation will be wiped out, as it will have been squandered to perpetuate the biggest real estate and consumer debt bubbles of all time.
Now if I could have seen that coming as early as May 2004, why couldn’t the Fed? Even with the full benefit of hindsight, Bernanke still cannot recognize the Fed’s mistakes. Of course, as there is a campaign underway to expand the Fed’s regulatory authority, anyone expecting an honest assessment from its chairman and chief lobbyist simply does not understand politics.
