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The Fed helped create the housing bubble to begin with. Greenspan cut rates massively after dotcom popped and took his sweet time to normalize. Bernanke certain

The Fed helped create the housing bubble to begin with. Greenspan cut rates massively after dotcom popped and took his sweet time to normalize. Bernanke certainly could have worked with fiscal policy to bring down housing in a controlled way, as it become an out of control snowball. Of course there were many other factors too, government policy encouraging and guaranteeing subprime mortgages, clueless borrowers, faulty credit assessments, too much leverage. IMO the government should seek not to create bubbles and also to set up a structure where it's inherently difficult for them to form. E.g. Limiting leverage for investors/important institutions is an obvious one. A system that relies on participants making smart decisions is doomed to fail in the long run. If buy and hold residential SFH investors were only allowed to lever up to 2x to 1, you would see significantly less speculation in SFH with minimal downside outside of investment returns for those investors. It really doesn't take a lot to set up a safe structure while still leaving it a mostly free market. Just requires foresight and a willingness to curb some of the fun/exuberance in the short run

socksset 5y ago
It is hysterical Greenspan gets blamed for this when we have barely been able to keep rates off the floor the past 13 years since he left. https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS If 2002-2004 was keeping rates too low then what do you call the past 14 years?
- adam_arthur 5y ago
  He cut the funds rate from 6% to 1% pretty much overnight, which was excessive given there was only a mild recession at the time. To his credit he did start ratcheting it up shortly after. Low rate from past decade is for many reasons, high unemployment for most of the 2010s is the main one. Weak fiscal response to 2008 leading to slow recovery. The Fed shouldn't be the tool to try to address impact of a recession, it's much healthier to address through an intelligently crafted fiscal package. But the ease of being able to unilaterally set monetary policy tends to corrupt the Fed's decision making and skew it towards short term problems. All that being said, Greenspan did a hell of a better job than Powell overall

socksset 5y ago

It is hysterical Greenspan gets blamed for this when we have barely been able to keep rates off the floor the past 13 years since he left. https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS If 2002-2004 was keeping rates too low then what do you call the past 14 years?

adam_arthur 5y ago
He cut the funds rate from 6% to 1% pretty much overnight, which was excessive given there was only a mild recession at the time. To his credit he did start ratcheting it up shortly after. Low rate from past decade is for many reasons, high unemployment for most of the 2010s is the main one. Weak fiscal response to 2008 leading to slow recovery. The Fed shouldn't be the tool to try to address impact of a recession, it's much healthier to address through an intelligently crafted fiscal package. But the ease of being able to unilaterally set monetary policy tends to corrupt the Fed's decision making and skew it towards short term problems. All that being said, Greenspan did a hell of a better job than Powell overall