March 28th, 2007 – Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,"
May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”June 20th, 2007 – Bernanke: (the subprime fallout) ``will not affect the economy overall.''
October 15th, 2007 – Bernanke: "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions."
February 29th, 2008 – Bernanke: "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."
Bernanke had no sense of the extent to which subprime mortgages were a creature of the securitization market. No sense of the impact of falling prices on these securities on the banking system just as the inflow of foreign capital began to ebb because the U.S. trade deficit began to shrink. Even if one forgives the lack of foresight on the part of the Chairman of the Federal Reserve, he and Paulson decided to attack the problem by supporting security prices rather than the price of the underlying asset -- homes. During the real Depression, the Government came in, bought wheat, and plowed it under to support prices. What a different world in which we live today.