“It was a rookie mistake,” said Kenneth Thomas, a lecturer in finance at the University of Pennsylvania’s Wharton School in Philadelphia. The Fed “underestimated liquidity needs” of investors and the fallout from the housing recession, he said, adding, “This demonstrates the difference between book-smart and street-smart.”
From Bloomberg News

The meeting signals Congress is looking at ways to minimize the fallout from the collapse of the subprime mortgage market, including rising numbers of foreclosures among borrowers with poor credit or high debt. Dodd has been critical of the Federal Reserve and other U.S. regulators for not taking aggressive action to rein in lending abuses sooner.
From Bloomberg News

Rookie mistake my ass. There is probably a really good reason why the Fed doesn’t seem to be attacking the problems caused by the sub-prime collapse. And I suspect it is because they have another goal in mind. Consider that this may be a shrewd effort to push back the start of the next recession at the expense of a short term crisis. While I do think Bernanke is the rare competent appointee of this administration; I think his competence is coincidental. I have no reason to doubt that he, like so many others, have their position because they demonstrated that they will be loyal Bushies. While I freely admit to being about as cynical as one can get, I suspect the following:

  • There is an effort to insure that the coming recession not start while Bush is still in office. I suspect that the Fed will do anything and everything it can to achieve that objective.
  • When the coming recession does start, the same right wing pundits who blamed the last recession on Bill Clinton will be blaming which ever Democrat is in the Whitehouse. And if you dare to point out the disjointed logic, they’ll say something about 9/11.

Then again, I could be wrong. This could just be a weird miscalculation from the Fed.