It was only two weeks ago that Fed governor Jerremy Stein delivered a speech titled "Overheating in Credit Markets [7]" in which he observed the obvious and warned that a new credit bubble was forming (not to mention housing, tech, student loan, GM channel stuffing and much more). And it was only yesterday that we learned that Bernanke, after a 6 year hiatus, just had his latest "everything is contained" moment. From BusinessWeek [8]:
"Federal Reserve Chairman Ben S. Bernanke minimized concerns that the central bank’s easy monetary policy has spawned economically-risky asset bubbles in comments at a meeting with dealers and investors this month, according to three people with knowledge of the discussions.
The people, who asked not to be identified because the talks were private, said Bernanke made the remarks at a meeting in early February with the Treasury Borrowing Advisory Committee. Fed spokeswoman Michelle Smith declined to comment.
The Fed chairman brushed off the risks of asset bubbles in response to a presentation on the subject from the group, one person said. Among the concerns raised, according to this person, were rising farmland prices and the growth of mortgage real estate investment trusts. Falling yields on speculative- grade bonds also were mentioned as a potential concern, two people said.
For those who are confused, the TBAC, or the Wall Street-committee, headed by a Goldmanite and a JPMorganite, that effectively runs the Treasury [9], warns Bernanke that new bubbles are forming (although certainly not in government bonds - that would imply the US government is a Ponzi scheme of course), and the Chairman promptly brushes it off.
In other words: "it's all contained", and just as when Maria Bartiromo asked him in July 2005 "what is the worst case scenario if prices come down substantially", so now his response, as then, is "I guess I don't buy your premise, it's a pretty unlikely possibility. We have never had a decline of house prices on nationwide basis." Of course, three years later the Fed had to do everything it legally could, and also much more, to prevent the modern financial system from terminally imploding.