The NYT reported on a talk by Federal Reserve Board Chairman Ben Bernanke in which he claimed that the low interest rates set by the Fed were not responsible for the housing bubble, but rather "lax regulation." This is taken as an exoneration of Mr. Bernanke's performance at the Fed. It isn't. The Fed is the country's lead regulator. While the housing bubble was growing and bad mortgages were proliferating, Greenspan and the Fed insisted that everything was fine. Greenspan encouraged families to take out adjustable rate mortgages and did not even produce guidelines for mortgage issuance that banks had been expecting since the mid-90s. Greenspan and Bernanke also repeatedly disputed that there was anything out of the ordinary in the housing market, insisting that the run up in prices was driven by fundamentals. Mr. Bernanke is absolutely right that low interests were not the cause of the housing bubble, but this hardly removes the Fed's responsibility. While all the regulators share some of the blame, the bulk of the blame for bad regulation lies with the lead regulator, the Fed.
--Dean Baker
