Tuesday, November 10, 2009

Reaction to Frederic Mishkin:

I consider Mishkin's remarks that "pure irrational exuberance bubbles" are no big deal, to be one of the most significant statements ever made by a (former) Fed Governor (see this post). Mishkin is clearly sending a Bernanke-approved signal about how they judge these things. The blithe acceptance of non-credit bubbles tells you all you need to know about where their priorities are: it's the banks and only the banks. Bubbles mean poor allocation of capital and when they eventually pop, a significant number of people are hurt very badly.

Below is a collection of blog posts in reaction to Mishkin. All are negative.
  • Naked Capitalism (I think this is the best of the lot) Excerpts:
    The Fed is clearly involved in a concerted program to reflate distressed assets (most notably housing) that has spilled into just about every type of investment (and a few that have not traditionally been investments, namely commodities).

    By definition, a bubble is a massive price distortion in certain types of assets. That is already not a good thing. If you believe in markets, you believe in the value of price mechanisms because they lead to efficient allocation of goods and services and help channel investment funds to productive uses. At a minimum, bubbles are bad because they suck capital into seriously suboptimal uses at the expense of better ones. So ANY defense of bubbles has to be regarded with considerable skepticism. Bubbles are bad even when they fall short of the standard of wrecking an economy, which appears to be the base line Mishkin is using in his FT piece.

    What is truly disconcerting about Mishkin’s remarks is that, even though he is no longer at the Fed, they probably represent conventional wisdom there. And that means the officialdom has gained perilous little insight from this disaster.
  • Henry Blodget (somebody who knows about bubbles; he was a cheerleader in the era)
  • Interest Rate Roundup (short and angry)
  • Financial Post / National Post
  • Jesse's Café Américain
  • Seeking Alpha
  • Agnes Crane at Reuters
  • The Big Picture
  • Market Talk
  • Credit Writedowns


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