Failure, they say, is an orphan, and the financial crisis is no different.
In a speech on Wednesday morning at an International Monetary Fund conference, Federal Reserve Chair Janet Yellen argued that the low-interest-rate policy that the Fed maintained throughout the 2000s did not contribute to the financial crisis.
“It is not uncommon to hear it suggested that the crisis could have been prevented or significantly mitigated by substantially tighter monetary policy in the mid-2000s,” Yellen said. “At the very least, however, such an approach would have been insufficient to address the full range of critical vulnerabilities” facing the country at the time.
Yellen instead argued that raising rates during the run up to the crisis would have led to higher unemployment without getting to the core issues facing the financial system, which included the use of exotic and poorly understood derivatives and poor risk management on the part of large, systemically…
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