Remember all those assurances from Ben Bernanke and his predecessor Alan Greenspan that, first there was no housing bubble, and then more recently that the problems were restricted to the subprime market and posed no larger threat to the financial system? Bernanke’s actions today indicated that he apparently had not known what he was talking about earlier. He abruptly decided to lower the discount rate on the money that the Fed lends to member banks. This sort of rate cut, between meetings of the Fed’s open market committee, is truly extraordinary. The Fed would not make such a move if Bernanke had been right and the problems in the housing market were relatively small and restricted to the subprime mortgage market. The Fed takes a step like this when its chair is panicking. The media should be holding Bernanke accountable. The current financial meltdown facing the country would have been far less serious if Bernanke and Alan Greenspan had taken steps earlier to stem the growth of the housing bubble and head off the worst excesses in the mortgage market. Custodians and dishwashers get fired when the toilet is dirty or the dishes are broken. Why is the standard of accountability for the Fed chair so much lower?
--Dean Baker
