It is infuriating to read or hear Bernanke apologists claiming that no one else saw the real estate bubble, therefore, he should be absolved and reappointed; or they argue that his tenure as Fed Chairman was too far along in the bubble to allow him to make any adjustments, such as tightening the money market.
"Hogwash!" When home sales, across the nation, rise as quickly as they did in 2003 and later, only an idiot, sociopath, or one incompetent to hold such a position, would miss or ignore a key indicator of risk to our nation's economic health.
Mr. Bernanke is no idiot, and he is supposedly a scholar of economics history, particular the U.S. depression of the 1930's. He should be educated well enough to know that real estate bubbles, outside of a normal ebb and flow of markets, have in the past traumatized our economy, causing it many subsequent years of hardship. Therefore, would it not be prudent, indeed crucial, to keep tabs on measures of that activity?
They, also, fail to note Mr. Bernanke was on the Federal Reserve Board from 2002 to 2005 during the birth and most of the life of the housing bubble. Or, that the only time he spent off the Federal Reserve's Board since 2002 was for roughly eight months when he was Chairman of the President's Council of Economic Advisers; no small post or responsibility.
I'm not an economist, I'm not being paid a six figure salary to simply watch a few numbers every day. But, had I been charged with such a matter, I think I could have given the country its money's worth. Not long out of college, in the early 80's, I pondered why home prices increased faster than the rate of inflation. The advice routinely given was to buy a house, "Houses always go up in price," was repeated often as if it were a law of nature.
During those years, the favored terminology was that homes 'appreciated' in value. To me, it seemed illogical that home prices would rise at a consistently faster rate than the price of other goods and services. How could that be sustained? It caused me to search for factors which could have created that circumstance. I identified three unique demographic events which explained that particular economic phenomenon. From that analysis, and by extension, I was able to predict many years in advance a crest and dip in housing demand, and thus prices. That prediction, for 1990, came true.
Had the government then been prudent in monitoring and analyzing demand for housing, it could have provided critical information to builders that may have resulted in averting the supply/demand gap, which resulted in widespread harm to the economy in 1991/92.
Thus, in 1982, a guy who was not a Harvard educated economist could use simple logic to figure out and predict how one of the nation's major markets would react almost a decade in advance. And yet, with current numbers in hand, Mr. Bernanke, a renown economist, being paid $150,000 to carry out the duties of the Federal Reserve Board, sat by in 2003, 2004 and 2005, apparently not alarmed by extraordinary data on home sales, and prices.
Had the U.S. population surged, or at least the adult population, to explain the sharp rise in demand for single family homes? Had the median household income, adjusted for inflation, rose so quickly as to account for the surge? Did he care enough to give it thought? We're not talking about subtle differences here.
Could the alarm and the danger be clearer than these excerpts from a July 19, 2004, article in BusinessWeek:
Could the alarm and the danger be clearer than these excerpts from a July 19, 2004, article in BusinessWeek:
How crazy is real estate getting in parts of the country? . . .
Heavy mortgage borrowing since 2000 has enabled the housing market to dodge an iron law: House prices can't perpetually rise faster than incomes. For the past four years, they have. The ratio of house prices to median family income is a record 3.4, a figure that's 19% above the 1975-2000 average, according to data from the Office of Federal Housing Enterprise Oversight and the Census Bureau. . . .
A downturn in housing would squeeze recent buyers who overleveraged themselves to pay top prices -- and risk slowing the entire economy by cooling consumer spending as well as housing construction, lending, and the real estate business.
A Wall Street Journal staff article titled, 'The Historical Record on the Bubble', reveals this:
A Factiva search of the top 50 newspapers in the U.S. returns 268 stories referring to a housing or real-estate bubble in 2003. In 2004 that number increases to 369 and in 2005 it swells to 1,608.
The Bernanke reappointment just reaffirms my belief that most Congressmen have little understanding of economics and finance, among other deficiencies. It is mostly a 'dog and pony' show up there, done just as well by the panel at any state fair judging for the best pie.
We don't expect politicians to be expert in any field but one, common sense. It doesn't take a lot of knowledge of derivatives, credit markets, supply and demand, reserve requirements, CDO's, and the like, to know whether or not Mr. Bernanke was successful in his job of monitoring indicators of the nation's economy for signs of danger, when the results of the last few years have been more than enough to scream out a resounding "NO!"
If the sailor up in the crow's nest of the ship fails to do his job, which is to warn the captain when there is danger ahead, and the ship wrecks on a reef, crewmen are killed and vital materials are lost, the surviving crew isn't going to have any faith in a captain who, once under sail again, puts the same fellow back in the crow's nest.
The only positive attribute Mr. Bernanke's advocates offer, for his reappointment, is that he did a remarkable job in preventing a collapse in the country's major banking institutions, and presumably saving us all from a terrible fate. Well, it then might be that Mr. Bernanke's talents lie in rescue efforts after disasters have occurred, but certainly not in preventing them. Those are, indeed, different skills, and we need the latter at the head of the nation's top post for monetary and economic supervision.
Regardless, of which way your political sail blows, i.e. bias, do yourself a favor and check out the votes of the senators on Bernanke's confirmation. This New York Times report contains a convenient map. If you formerly only loathed the members of one party, or both, perhaps you'll gain some respect for a few of your nominal opponents, and question the cognitive ability of many with whom you normally align. It's the only 'silver lining' I can find in this pathetic reappointment.
-RLee
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