“SHORTLY before Ben S. Bernanke was nominated as chairman of the Federal Reserve in 2005, he paid a return visit to Stanford, where he started his academic career in 1979. In a speech, he recalled that he and his wife, Anna, had rented a house with friends because he was certain that local real estate prices would fall. Instead, prices in the Bay Area doubled, then doubled again.
“’Since then,’ Mr. Bernanke told his audience, ‘I’ve developed a view that central bankers should not try to determine fundamental values of assets.’
“Indeed, Mr. Bernanke’s academic work, largely at Princeton, helped shape the conventional wisdom that central banks couldn’t spot asset bubbles and shouldn’t try to pop things that looked like bubbles. In his first speech as a Fed governor in 2002, he reiterated that trying to judge the sustainability of rapid increases in housing or stock prices was ‘neither desirable nor feasible.’
“Over the next several years, he said repeatedly that he saw no clear evidence of a housing bubble. And in 2004, the Bernankes paid a hefty $839,000 for a town house on Capitol Hill in Washington.”
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