Mea Culpa

Bernanke appeared before the Financial Crisis Inquiry Commission and admitted
he had been wrong.

Mr. Bernanke said that when he made his remarks in 2007 he thought the subprime problems were "manageable."

"What I did not recognize was the extent to which the system had flaws and weaknesses in it that were going to amplify the initial shock from subprime and make it into a much bigger crisis," he said.

He basically agrees with Yale professor Gary Gorton, who I blogged about here.

Professor Gorton has compared the crisis to a classic bank run, but with the "banks" in this case being short-term wholesale financing markets -- a loosely regulated, uninsured system known as shadow banking.

About the housing bubble, Sewell Chan - author of the linked NYTimes piece - writes,

In a 2002 speech when he was a Fed governor, Mr. Bernanke argued that central banks should not try to use monetary policy to pop asset bubbles. As part of his nearly three hours of testimony on Thursday, Mr. Bernanke held to that view, but said that at the time he had called for careful supervision and regulation to maintain financial stability.

"We didn’t do that," conceded Mr. Bernanke, who became Fed chairman in 2006. "Going forward, we need to be able to do that."

and

While Mr. Bernanke stuck with his long-held stance that the Fed had not aided the housing bubble by keeping interest rates too low for too long in 2002-4, he embraced the view of Gary B. Gorton, an influential Yale finance professor.

Dean Baker writes:

Any serious weighing of the benefits and risks of bursting the bubble in 2003-2004 would have surely come down in favor of bursting the bubble. The Fed's decision not to burst the bubble was one of the most disastrous failures of monetary policy in history.

Will the Financial Crisis Inquiry Commission's report reflect that?