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The FED knew about the impending housing bust

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January 14, 2011 – Comments (5)

Excellent post by Pragcap. Right now everybody is in love with the Fed because of the psychological impact that QE2 is having on the market. But the FED knows how destructive these policies are (they know that the risks increase far more than the benefits => benefits are temporary). Not only from empirical evidence, but also by internal analysis and discussions on the topic.

I am not saying that the market is going to crash here (like I have said before recently, I think we are getting a pullback soon, but I am in the camp that think that higher prices are coming into mid 2011). But what I am saying is that there are dubious beneficial real and sustainable postive economic impacts with policies like this. And markets may love these policies in the short term, the longer term impacts are significantly more negative.

Post from PragCap

Federal Reserve Document

I like this paragraph by TPC:

You can review the entire document here.  It’s full of various presentations and evidence showing that the Fed knew there was a bubble and still did not take the proper risk management measures to try to alleviate the problems.  What’s even more worrisome is that the Fed openly acknowledges that these sorts of events can lead to catastrophic economic outcomes, yet here we are implementing another policy of “keeping asset prices higher than they otherwise would be”.  Do these people never learn?

That is to say, we are making the same mistakes ... again. Right now.

5 Comments – Post Your Own

#1) On January 14, 2011 at 6:05 PM, kdakota630 (29.76) wrote:

LOL!  I just saw this exact story and was debating whether or not to repost it.  I guess I don't need to now.

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#2) On January 14, 2011 at 6:07 PM, binve (< 20) wrote:

kdakota630,

hah! Beat you to the punch :)

Great minds, and all that jazz :).

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#3) On January 14, 2011 at 6:42 PM, kdakota630 (29.76) wrote:

Here's the article I saw.

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#4) On January 14, 2011 at 9:11 PM, devoish (96.28) wrote:

It’s full of various presentations and evidence showing that the Fed knew there was a bubble and still did not take the proper risk management measures to try to alleviate the problems.

"?". What were the proper "risk management strategies" that the Fed should have taken?

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#5) On January 15, 2011 at 8:02 AM, whereaminow (< 20) wrote:

"?". What were the proper "risk management strategies" that the Fed should have taken?

Great question. Would like to know the answer myself.

David in Qatar

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