In case you missed it, Ben Bernanke came out swinging at the liquidity addicts of the world in his speech Friday. To the Jim Cramers of the world he said,
"It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions."
Ouch...is that a bruised ego I see there Mr. Cramer? Ben Bernanke, however, did recognize the danger of contagion by noting,
"... developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."
These words received the most attention in the media. A less noticed but nonetheless fascinating part of his speech looked at the history of housing. He specifically looked at five periods in housing finance history and its relation to macroecomic activity:
(1) Beginnings: Mortgage Markets in the Early Twentieth
(2) The New Deal and the Housing Market
(3) The Transmission Mechanism and the New Deal Reforms
(4) The Emergence of Capital Markets as a Source of Housing Finance
(5) The Monetary Transmission Mechanism Since the Mid-1980s
These five mini-chapters on the history of housing sector and its relation to the macroeconomy is the rest of the speech worth reading. Take a look for yourself at the speech.