(Source: Big Money)

In a speech yesterday, Fed Chairman Ben Bernanke insisted that low interest rates were not the root cause of the most recent real estate bubble. The New York Times says he used his “strongest language yet” in defending the central bank’s past decisions and emphasizing the importance of greater financial regulation moving forward. Bernanke said, “Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.” The Wall Street Journal notes that Bernanke’s views on how the Fed should handle bubbles have changed. Previously, the paper says, “Its bubble strategy was to mop up after a bubble burst with lower interest rates to prevent damage to the broader economy.” Recently, though, “Bernanke said, ‘never say never,’ when asked whether the Fed should instead use higher interest rates to pre-emptively prick future bubbles, and he later said he wouldn’t rule it out.”

Read Caitlin McDevitt’s full article “Ben Bernanke Won’t Take the Blame for Bubbles” in Big Money (January 4, 2009).

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