Ben Bernanke has recently been reappointed chair of the Federal Reserve Board. Time Magazine has proclaimed him 2009 Person of the Year. He has received almost universal praise for his aggressive actions to halt the collapse of our credit system.
But conveniently overlooked in all hoopla is the fact that Bernanke long denied the existence much less the danger of a housing bubble (while his policies were blowing it up) and then was slow to acknowledge the seriousness of the crisis that resulted from the bubble’s collapse.
Thus, Bernanke’s actions (or lack of them) played a critical role in creating the crisis that he finally was forced to confront. Is that a record worthy of Person of the Year honors much less reappointment?
Here are a few quotes that help set the record straight (see the full list compiled by the Center for Economic and Policy Research here):
7/1/05 – Interview on CNBC
INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?
BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.
7/1/05 – Interview on CNBC
INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.
1/10/08 – Response to a Question after Speech in Washington, D.C.
The Federal Reserve is not currently forecasting a recession.
2/27/08 – Testimony before the Senate Banking Committee
I expect there will be some failures [among smaller regional banks]… Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.
6/10/08 – Remarks before a bankers’ conference in Chatham, Massachusetts
The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.