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Richard Alford: Fed Abandoned Its Duty in Pre-Crisis Housing Bubble Posture

By Implode-Explode Heavy Industries

"The Federal Reserve Bank of Boston recently published a paper titled: ?Reasonable People Could Disagree: Optimism and Pessimism About the US Housing Market Before the Crash.? The paper proposes two interrelated standards by which the Fed?s role in the run-up to the recent crisis can be judged. The authors ?conclude by arguing that economic theory provides little guidance as to what should be the correct level of asset prices ? including housing prices. Thus, while optimistic forecasts held by many market participants in 2005 turned out to be incorrect, they were not ex ante unreasonable.? The implied pass issued to the Fed for having missed the housing bubble elicited much anger and consternation from bloggers and others. "

Full post as published by Mortgage Lender Implode-o-Meter on September 09, 2010 (boomark / email).