Low rates didn't cause bubble, Bernanke says

[Bo]

Bernanke is saying this so that people will give him and Greenspan less blame for the bubble and financial crisis. Of course he knows that low interest rates caused the housing bubble, he's just trying to protect his reputation.

[Bo]

Bernanke is saying this so that people will give him and Greenspan less blame for the bubble and financial crisis. Of course he knows that low interest rates caused the housing bubble, he's just trying to protect his reputation.

I agree to an extent. I posted this because I think that Bernanke makes some good points, but obviously the Fed has an interest in deflecting blame away from itself. And Bernanke's technical attack on the Taylor rule, claiming that using forecast inflation rather than current inflation makes the Fed's policies more reasonable, misses the point. It ignores non CPI inflation and the general excessive growth of the credit cycle. Despite what they say, I think the Fed is more shaken up than their bravura self defense here would suggest. It's common sense that one reason so many started refinancing in 2002 was low interest rates.

I don't think the Fed is forced to follow the Taylor Rule--they can choose to follow it or not follow it.

[Bo]

I really wish there was a simulation where we can hold certain events like "mortgage underwriting standards" and "1% federal funds rate" and isolate it. I have a feeling he has good points but is still not giving enough weight to the low Fed Funds rates from 2001 to 2005.

Of course he isn't giving enough blame to low interest rates? Why would he? He knows low interest rates largely caused the bubble (along with some other less important factors), but he does not want to damage his buddy Greenspan's reputation.