Quote:
Originally Posted by parsonsj
Tony,
We probably agree a lot about the underlying mechanism of the housing bubble, but you can't put all of the bubble at the feet of interest rates that were too low, along with the moral hazard of too big to fail. You have to also acknowledge two other contributing factors:
1. The repeal of the Glass-Steagall act, and
2. The complete lack of regulation of credit-default swaps.
Neither of those significant contributing factors had anything to do with the Fed.
Yes, Wall Street caused our housing bubble, with the Fed supplying some of the cash. But better / more regulation of Wall Street is essential to keep it from happening again. You'd think they'd be a bit humbled after their performance leading up to 2008-2009, but they are fighting Dodd-Frank with everything they've got.
You need to read Krugman in context:
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John I agree with your 1st point. No doubt that was a factor. The repeal opened the doors for abuse. But to your 2nd point, the SEC was supposed to regulate Bernie Madoff. The fact is they failed and/or covered for him in that regard. So we just can not rely on 'regulations' alone.
However, the fact still remains. The Fed is the great facilitator. Without them fixing the rates too low for too long, the sharks would have nothing to feed on. So, yes, the Fed gave Wall St the fuel to start that fire. And Wall St did have the cover too, making the Fed a huge moral hazard. These banks took risks and as an insider cartel members, they put their competition out of business and their losses on to the US govt/taxpayers.
We are talking about a private banking institution, who by law can create dollars out of thin air. All with NO oversight, rules or regulation.
So would you agree that the regulation needs to be on the Fed?
To avoid this again, interest rates need to be a result of the free market, not fixed by a handful of special interests at the top of the pyramid.
And the whole Krugman article does not change much for me. Those are still his words and ideals.