Krugman is a national treasure:
By PAUL KRUGMAN
When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”
There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.”
That’s quite an understatement. In fact, the explosion of “innovative” home lending that took place in the middle years of this decade was an unmitigated disaster.
But maybe Mr. Bernanke was afraid to be blunt about just how badly things went wrong. After all, straight talk would have amounted to a direct rebuke of his predecessor, Alan Greenspan, who ignored pleas to lock the barn door while the horse was still inside — that is, to regulate lending while it was booming, rather than after it had already collapsed. (…)
This episode is just another in a string (S&L crisis of the 80s, leveraged hedge funds of the 90s, Enron/Worldcom, etc of the 00s) in which conservatives “let the market work” while the bankers/traders make gazillions of dollars, and then when the market collapses leave the public to pay the consequences. What irritates me the most is the bankers/traders still have their gazillions of dollars, while the stockholders in their companies, the homeowners who lost their houses, and the overall macroeconomy pay the costs.
What also irritates me is that this is a bubble that we saw coming for a very long time. It was the most expected meltdown ever, and yet the Federal Reserve and the government just watched it happen because doing something was inconsistent with their political beliefs. This is inexcusable.