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By John Cassidy, author of How Markets Fail and a staff writer at the New Yorker
Behind his white beard, Federal Reserve chairman Ben Bernanke has a wry sense of humour. On reading his recent speech to the American Economic Association, in which he defended the Fed’s actions during the housing bubble, I initially suspected it was a practical joke. Rather than conceding that he and his predecessor, Alan Greenspan, made a hash of things between 2002 and 2006, keeping interest rates too low for too long, he said the Fed’s policies were reasonable and the main cause of the rise in house prices was not cheap money but lax supervision.
Searching in vain for a punch line, I was reminded of Talleyrand’s quip about the restored Bourbon monarchs: “They have learned nothing and forgotten nothing.” Mr Bernanke is far smarter than Louis XVIII and Charles X, two notorious boneheads, and has done a good job of firefighting. But his unwillingness to admit the Fed’s role in inflating the housing and broader credit bubble raises serious questions about his judgment.
This debate is taking place on the FT’s Arena blog:
Four seasons have now passed since the highest-profile casualty of the financial crisis, Lehman Brothers, went under. Since then, all over the world, politicians, regulators and central bankers have focused on what needs changing to prevent another meltdown. Of course, crises come and go. But at the very least have banks learned their lesson? They would argue they are better capitalised than 12 months ago and have exited the nasty products that shot holes in their balance sheets. Banks might also say that the consolidation of the likes of Bear Stearns, Merrill Lynch and HBOS into healthier rivals can only strengthen the sector. The regulatory environment will certainly be tougher. But there are plenty who still worry history might repeat itself. After all, most banks largely look like they did pre-Lehman, albeit with fewer people. They also remain highly leveraged and remuneration still rewards risk. Do you think banks have done enough? Join the debate. Click on comment.