Let's hope Bernanke isn't always wrong

The current chairman of the federal reserve is the embodiment of human awe in the face of illustrious academic qualifications and technical language that can make people believe that the possessor has some secret special knowledge. As he has admitted, he learned a couple of tricks from a true master of illusion, Alan Greenspan:

"Our understanding of the best practice in monetary policy evolved during Alan Greenspan's tenure at the Fed, and it will continue to evolve in the future"

At a different time that comment would have been amusing as opposed to chilling. The evolution of his understanding of the best practice appears to be following in Greenspan's steps in what should really be described as 'worst outcome' as opposed to best practice. Bernanke spent a good deal of the early days of the sub prime crisis expounding his learned view that the problem would be self contained and was unlikely to even spread to the broader housing market.

"We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system"

Oh to be back in those carefree days when the only worry was an effect on the broader housing market. As a member of the Federal Reserve team that watched the housing sector, due to its slashing of interest rates to just above zero, prevent a downturn after the popping of the technology bubble this would seem an oversight. What is astonishing is that he as Fed chairman had not access to some information that would have enlightened him about the relationship between the booming housing sector and the booming financial sector. Outside of a pure multiplier effect there was clearly a direct threat to the financial industry from its massive exposure to leveraged sub prime assets.

Across the globe politicians who have openly admitted to a problem they don't really understand, presumably unconcerned by the fact (or unaware of it) that he has been continually wrong throughout his time at the Fed, are still relying on Bernanke for guidance. He, along with former Wall St banker Hank Paulson, finally after a few wasteful efforts came up with the large scale bailout plan for the banks and the EU, not to be outdone, have followed suit. As this global response is being prepared to bail out the financial sector lets hope this time Bernanake is right and once again this costly intervention won't cause even further wealth destruction. I suppose nobody can be wrong all of the time.