Alan Greenspan - Fed didn't do it!

The Fed Didn't Cause the Housing Bubble

We are in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s. It will eventually subside and pass into history. But how the interacting and reinforcing causes and effects of this severe contraction are interpreted will shape the reconfiguration of our currently disabled global financial system.

There are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.

More at WSJ

Bernanke seeks data to fix the mess

Alan Greenspan trusted his instincts. Ben Bernanke trusts the MAQS.

For the past several days, the MAQS - a group of analysts in the Federal Reserve's Macroeconomic and Quantitative Studies unit -- have run a series of what-if scenarios on the US economy that will play a critical role in next week's interest-rate decision, according to a report on the website of Bloomberg.

"The simulations will supplement the forecast handed to policy makers at the start of their September 18 meeting, and may determine the size of the rate cut almost universally predicted by Wall Street economists," the report said.

Bernanke has championed the team's work since becoming Fed chairman in 2006 because he wants to sift through models, projections and anecdotes before coming to conclusions. His approach contrasts with that of predecessor Alan Greenspan who relied more on his own reading of conditions, and as a result probably would have cut rates to insure against a recession long before the Federal Open Market Committee (FOMC) gathering.

The FOMC will next week lower the overnight lending rate between banks to 5% from 5.25%, according to the median forecast of economists surveyed by Bloomberg. The reduction would be Bernanke's first and may be followed by at least two more before year-end, the report said.