David Brooks is either very confused or very dishonest. He tries to argue that the financial crisis would have been almost impossible for the Fed to have anticipated and that it was actually worse in the more highly regulated sectors of the financial industry than in the less highly regulated sectors: "The current financial crisis is centered around highly regulated investment banks, while lightly regulated hedge funds are not doing so badly. Two of the biggest miscreants were Fannie Mae and Freddie Mac, which, in theory, “were probably the world’s most heavily supervised financial institutions,” according to Jonathan Kay of The Financial Times." Investment banks are "highly regulated?" Who does Brooks think highly regulates the investment banks, the SEC? Hedge funds are not doing badly? I suppose that's true of the ones that have survived. As far as Fannie and Freddie, they are still issuing mortgage backed securities. The private issuers are out of business because the market won't buy their garbage. Does Brooks really not know any of this? In terms of the Fed, there was no excuse for its incompetence. It was easy to recognize the housing bubble -- there were no serious arguments on the other side, just the authority of prominent economists. We just need superhumans as Brooks tries to imply, we just need people running the Fed with a little commonsense and who can think for themselves.
--Dean Baker
