Capital Markets - News and analysis

The Becker Posner Blog: Should the Fed Remain Independent? Dec. 2009

Find here some excerpts from the Becker article. It is worth to read Becker's and Posner's contribution as a whole as they provide good insights for the discussion about whether the Fed should stay independent or not:

BECKER:

"Neither former Fed Chairman Alan Greenspan nor the present Chairman Ben Bernanke anticipated the financial crisis that erupted in 2008. In addition, Greenspan helped keep interest rates low for several years after the 9/11 attacks on the United States that contributed to the boom in housing prices, the stock market, and other asset prices. For these and other reasons there is considerable anger and disappointment toward the Fed in Congress and among some economists."

"The problem with these attacks and proposals is not that the Fed behaved perfectly either during or before the crisis-far from it- but rather that closer Congressional supervision and oversight is likely to make matters much worse rather than better."

"Members of Congress also directly contributed to the unsustainable housing boom. Barney Frank, one of the most knowledgeable Congressmen about financial matters, urged banks to increase their mortgages to subprime borrowers. The Community Reinvestment Act of 1977, extended further in 1995, also basically forced banks to increase their mortgage lending to consumers in poorer areas who were not likely to be in a financial position to meet their mortgage payments."

"Central Banks in many countries have fought over decades and even centuries for the type of independence in their decision-making that the Fed enjoys. The problem usually with dependent central banks is that they engage in considerable inflationary printing of money under the urging of the executive or legislative bodies that control them."