Why didn't we do something?

I'm now at a panel on financial regulation, moderated by the inimitable Clive Crook. The panel is, as Clive put it, a "dream team" for discussing the question. Beth Brooke is currently discussing whether the problem was inadequate financial regulation, and making a persuasive case (to me, at least) that it was not. As long as house prices were rising, the decisions that the borrowers and lenders made were rational. And I'm pretty unconvinced by the argument that the housing bubble could have been popped by better regulation. The last, desperate mortgages might have been avoided through better regulation of the mortgage brokers, but much of the horrible debt had already been accumulated by then.

At this point in the coversation, many eyes turn to the Fed and blame Bernanke for excess liquidity. But given the aggressive determination of Asian central banks to keep their currencies low relative to the dollar, and the foreign savers seeking safe haven here, I find it hard to see how this would have ultimately helped. Higher interest rates would simply have raised the value of the dollar, causing further lending by Asian central banks, and of course, they would have made America even more attractive to foreign investors.