The conventional wisdom seems to be that the housing boom and subsequent bust were caused in (large?) part by not enough government regulation. In fact, there is movement to give the Federal Reserve new expanded authority in hopes of preventing future such man-made disasters.
If only we’d had more power, we could have kept the financial crisis from getting so bad.
This post brings up the indisputable point that the Fed did NOT see the problems during the last boom so expanding the Feds authority won’t solve the problem.
In 2004, Alan Greenspan, then the chairman, said the rise in home values was ” not enough in our judgment to raise major concerns.” In 2005, Mr. Bernanke “” then a Bush administration official “” said a housing bubble was ” a pretty unlikely possibility.” As late as May 2007, he said that Fed officials ” do not expect significant spillovers from the subprime market to the rest of the economy.”
It seems to me that we should design systems that are hard wired to lower the likelihood of another boom and bust. We should avoid systems that are dependent on humans recognizing that a problem is occurring to be effective. Bureaucrats, just like everyone else, get swept away by irrational exuberance.