Bernanke and Kohn Team Up to Deflect Fed Culpability for the Crisis

I woke up to two back-to-back speech alerts from the Federal Reserve Board of Governors this morning and I'm going to ignore the potential joke about Sunday being a day of rest since, well, Bernanke and Kohn don't wear bling crosses around their necks so it doesn't really matter. But really? The Sunday after New Year's? No rest for the weary, eh boys?

Bernanke and Kohn, little BFFs that they are, spoke from an American Economic Association meeting today in Atlanta (no, they were not joined by Atlanta Fed President Dennis Lockhart who should probably be helping his bank supervisors stave off the next round of Georgia bank failures) and parroted each other perfectly. Who did Monetary Policy in the Crisis: Past, Present, and Future and who did Monetary Policy and the Housing Bubble?

Blah blah blah blah.

Reuters wraps up Kohn's little song and dance

The U.S. economy and job market will rebound only gradually because of ongoing constraints on lending, Federal Reserve Board Vice Chairman Donald Kohn said on Sunday.

This means inflation will remain contained for some time, he said in prepared remarks to the annual meeting of the American Economic Association.

"Lingering credit constraints are a key reason why I expect the strengthening in economic activity to be gradual and the drop in the unemployment rate to be slow," said Kohn, a senior and influential figure at the central bank.

The U.S. economy expanded 2.2 percent in the third quarter but only after registering its worst recession since the 1930s.

Kohn said the Fed's extraordinary stimulus measures, which included lowering interest rates to near zero and developing a host of unconventional lending facilities, helped engender that recovery.

He said that the Fed would have to begin pulling back, however, before things were completely back to normal.

Yeah like they should have done months ago? I'll believe it when I see it.

And then we have our buddy Zimbabwe Ben insisting it was a regulatory - not monetary policy - failure that ruined our economy (via NYT):

Regulatory failure, not lax monetary policy, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.

“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,” Mr. Bernanke, whose nomination for a second term awaits Senate confirmation, said in remarks to the American Economic Association.

Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued that the interest rates set by the central bank between 2002 and 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve System for most of that period.

Technical models based on historical trends in United States housing prices and monetary policy show that home prices rose much faster than interest rates alone would have predicted, Mr. Bernanke said.

He also argued that trends in other countries demonstrated a “quite weak” connection between housing price appreciation and monetary policy.

Bernanke is your typical blind macro Mr Magoo. I'll take that, though, it beats Don Kohn talking a bunch of bullshit about a Fed plan none of them have the balls to pull the trigger on.


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