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Planet Money interview with NY Fed President Dudley

By Anonymous

From Adam Davidson, Chana Joffe-Walt and Jacob Goldstein at Planet Money: The Friday Podcast: New York Fed Chief, Bubble Fighter

And here is the transcript of the interview: New York Fed Chief: We Should 'Try To Identify Bubbles'. An excerpt:

MR. DUDLEY: I mean, my view is not so much that we are going to prevent all asset bubbles. I think that's unrealistic. But what we might be able to do is prevent the asset bubbles from being quite so big and maybe preventing the consequences of the asset bubbles from when they burst being quite so bad.

So imagine in the last few years if, let's say, a much tougher approach had been taken to subprime underwriting. So we basically said, you can't have no-doc loans. You have to have restrictions on loan-to-value ratios. You have to make sure the subprime loans that the people actually can afford them once their teaser rates periods end.

Q: Crazy ideas. Why would you want to do any of that?

MR. DUDLEY: If you had done all those things -- if you had done all those things, I would speculate that -- if all those had been in place, there would have been less credit that had flowed into the housing sector, housing prices would have gone up less far and when the whole situation reversed, we'd see a less severe decline in housing prices, less stress on the financial system and therefore less stress on the macro-economy.

So it seems to me that, you know, obviously, hindsight is 20-20. But it seems to me with the benefit of hindsight, it seems like things could have been done to restrain the asset price movements in a way that would have generated a more stable financial system and a more stable macro-economy.

There were quite a few people arguing that the regulators should tighten standards in 2004 and 2005. And I don't think Dudley should focus on subprime mortgage - there were weak underwriting standards in Prime and Alt-A residential mortgages, commercial real estate, and many other areas.

Oh, and one final excerpt (based on Bear Stearns assets):

Q: So just one very last question. We actually called one of the REO properties, a mall in Oklahoma that's in default. And I don't know how to say this other than as inarticulately as, it just blows my mind to think that we could call a mall in Oklahoma and realize their owner is the Fed. Just how do you feel when you think about that? It's such a weird thing.
...
MR. DUDLEY: I did not expect as president of the New York Federal Reserve that I'd be having to worry about a mall in Oklahoma City.

Full post as published by Calculated Risk on April 10, 2010 (boomark / email).