The former Fed chairman also acknowledged that the central bank failed to grasp the magnitude of the housing bubble but argued, as he has before, that its policy of low interest rates was not to blame. He stood by his conviction that little could be done to identify a bubble before it burst, much less to pop it.Can't identify a bubble before it burst? Really? This blog was created before the peak of the housing bubble specifically because my cob-logger, David, had identified a housing bubble.
At the time I first created my housing graphs in May 2006, I had already been following the housing bubble for five years. When housing activity had peaked but prices were still rising rapidly, that was the last straw that finally pushed me to warn people publicly.
Robert Shiller published the second edition of Irrational Exuberance in February of 2005, before the housing bubble peaked, specifically warning about the housing bubble. Because research and writing take time, he must have noticed the housing bubble quite a while before his book was published.
The editors of The Economist, after warning of the housing bubble for years, made it a cover story right before the peak in housing activity, a year before the peak in housing prices, and 2-3 years before the Federal Reserve decided to take it seriously.
Finally, economist Dean Baker first noticed the housing bubble in autumn of 2002 and was warning people for years before the peak.
Update: Harvard economics professor Greg Mankiw gives his thoughts.