I want to repeat my comments on systemic risk and the role of the Federal Reserve. I see where our past experiences are going to naught, both domestically and overseas.
In my studies in both graduate school and as a market analyst and businessman, I have seen how bubbles originate, and then cause their damage. I would like to make a suggestion about bubbles.
Bubbles usually are not stopped by Federal Reserve action on interest rates, as is usually suggested by pundits. That is because politicians always take over, and often preclude any dampening of interest rates by the Fed.
Not in a manner that can have an effect on a bubble. It would, for example, have had done absolutely nothing with the internet bubble. Or even the mortgage bubble because interest rate adjustments then would have been applied too late. The Fed’s miscues were too early to have been recognized.
Action or inaction by the Securities and Exchange Commission would have been effective. Just sitting on obviously useless and dangerous financings, instead of open-handed approvals of questionable underwritings created the internet bubble.
By merely slowing down the underwriting of questionable firms, the SEC would have dampened many such past debacles.
So the Fed had little to do with the bubble solution all the time.
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