Yesterday I relayed a Washington Post report on Ben Bernanke's "impressive" record of missing all the signals of a bubble that was to burst.
Paul Krugman did a better job than me in giving a poor grade to his former Princeton colleague. One point I missed putting in my previous post was this:
The only lifetime intellectual benefit of having gone to a "branded" university is to carry with you the conviction that not all who have gone there deserve automatic intellectual "kowtowing". You need to be selective. As I have often written in the past, the various Admissions Offices of those elite universities more often than not fly in the blind, contrary to the myth of how thorough they screen candidates. There is no way anyone can pick 8-9% of all applicants (those are the rates at HYP and columbia) and then claim they are all the best of the best on this planet.
So many with the most prestigious degrees have crashed and burned. Need I mention Bush, Cheney, Rumsfeld in DC. Alan Greenspan, Arthur Burns both former Fed Chairmen. Many, arguably most at the top who ran Wall Street right into the bubble? And now Bernanke with a Harvard BA and a MIT PhD?
I don't even want to yet again mention Hank Paulson, Geithner and Summers whose record on how lax their Wall Street bailout conditions have been letting Obama do the pro-forma lecturing to Wall Street about lending more to Main Street and their jumbo size bonuses right after Main Street bailed them out. Well, I mentioned it anyway!
It is not even a secret that they titans of Wall Street totally ignore Obama's PR posture on such matters.
Here is what Krugman wrote in a recent blog of his:
..."December 22, 2009, 10:58 AM
A strange complacency
Many people have written about this WaPo article on the Fed’s failure to foresee the crisis. I was particularly struck by the complacency over housing prices. I mean, there had just been an enormous increase in prices; the dotcom bubble was fresh in our memory; simple indicators like the price-rent ratio were flashing red. How could they have been so sure nothing was wrong?
And I was particularly struck by this part:
In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.
The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.
“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.
“I would have to say California,” said the economist, Richard Dekaser.
“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.
This time the warnings were correct …
Believe it or not, the Post is being too kind to Bernanke here, by implicitly asserting that past warnings about California housing bubbles had proved wrong. Um, no. Here’s a quick and dirty chart of Los Angeles metro housing prices, adjusted for inflation, between 1980 and 2000 (I’m using FHFA numbers and national PCE; you could do a more careful version, but I’m sure it wouldn’t make much difference):
The point is that there was indeed a huge CA bubble in the 80s, which burst painfully. Nor was this an obscure bit of knowledge: in fact, people like Calculated Risk and yours truly were quite explicitly using the great California bubble of the 80s as a model for what was going to happen nationally.
This whole episode makes me think considerably worse of my former department head."