> > They shouldn't have let the home equity bubble get so
>> out of hand ...
>
>How exactly should the Fed have done that? By raising interest rates
>earlier? They are still very low, historically. And the tax treatment
>of home equity is still very favorable ... seems to me that this isn't
>something the Fed could have done something about ...
The Fed has lots of power, formal and informal. Greenspan could have put away his pom-poms and started wagging his finger; the Fed could have told banks to cool it on lending; they could have made noises about dangers in the mortgage market; and they could have done that telling with varying degrees of force. A friend who used to work at the NY Fed told me once that when they wanted a bank to stop doing something, they had lots of ways to accomplish the goal, from making threatening sounds to doing intrusive audits. They could have done it, they just didn't want to.
Doug