"When Regulators Are Blind to Rules"

When Regulators Are Blind to Rules

By FLOYD NORRIS at the NY Times

http://www.nytimes.com/2014/12/19/business/when-regulators-are-blind-to-the-need-for-rules.html?_r=1

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One reason recessions were previously more common was that the Fed often found itself — in the words of William McChesney Martin Jr., the chairman of the Fed from 1951 to 1970 — “in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”

He made that remark in 1955, after the Fed raised interest rates repeatedly, seeking to slow the economy even though the inflation rate was close to zero. Fed officials, The New York Times reported at the time, cited “the continued buoyancy of the stock market” as a reason to fear that “the surge of economic growth has enhanced expectations of growth beyond reasonable limits.”

That was exactly what was happening in the late 1990s, but Mr. Greenspan saw no reason to be concerned about rapidly rising asset prices. Was it not clear that markets were efficient?

Starting in 1997, a series of crises appeared to be unrelated. Each was viewed as an extraordinary event.




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