An intriguing piece is up at the Washington Post, “Fed’s approach to regulation left banks exposed to crisis,” not simply because it does a good job of finding and analysing some case studies of the Federal Reserve’s failures at a bank regulator, but also because in the critical opening paragraphs, it launches a full bore attack on Bernanke. It focuses on a speech he gave at the Federal Reserve Bank of Chicago in May 2007:
“Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market,” Bernanke said. “The troubled lenders, for the most part, have not been institutions with federally insured deposits.”
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.
Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.