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Paul Willen

Federal Reserve
BA – Williams; MA – Yale; PhD Economics – Yale

Paul Willen is another in the long line of elite university educated people featured on this list whose benefits from their college education would appear to be limited to learning how to generate excuses and how to avoid accepting responsibility.  In 2010 three PhD economists working for the Fed - Willen, Kristopher Gerardi and a Harvard economics professor, Christopher Foote - published a paper on the housing crash.  In spite of the massive increase in home prices preceding the crash, the enormous increase in homeownership rates and the collapse in lending standards necessary to meet President Clinton’s (#12) housing goals, the Fed researchers reached the remarkable conclusion that economics is of little value in identifying asset bubbles;

“Many observers have argued that these rosy (housing price) forecasts ignored basic theoretical and empirical evidence that pointed to a massive overvaluation of housing and thus to an inevitable and severe price decline.  We revisit the boom years and show that the economics profession provided little such countervailing evidence at the time….Economic theory provides little guidance as to what should be the ‘correct’ level of asset prices — including housing prices.”  

Note that the conclusion reached here is in complete contradiction with statements made by James Bullard (#8), the president of the Federal Reserve Bank of St. Louis.  In September 2013 Bullard characterized the bubbles in tech stocks and housing as “gigantic and obvious” and a few months later called the housing bubble “blindingly obvious.”  Even Alan Greenspan would contradict the position established in Willen’s paper.  Here is “Mr. Chairman”, as CNBC lovingly refers to him, discussing the Lehman Brothers failure with his CNBC acolytes in October 2013, “We missed the timing badly on September 15th, 2008.  All of us knew there was a bubble.”  (September 15 was the day Lehman Brothers went bankrupt.)  

The obvious conflict around asset bubbles at the highest levels of the Fed clearly show the Fed doesn’t merit a fraction of the power it has.  How can an organization with this much confusion about basic economic concepts like asset bubbles have the power to actively manage, control and direct a credit market as large as that of the United States?  Even if there was some reason for an organization made of fully fallible human beings to have as much power as the Fed, wouldn’t it be incumbent on that organization to learn from the mistakes it is sure to make? As the Willen paper shows, the Fed appears to be organizationally incapable of learning from its mistakes.  Given this organizational failure – as well as the proclivity of Ivy League educated elites everywhere to never admit an individual mistake - the Federal Reserve will almost certainly fail to learn from any of the myriad mistakes it made that led to the crisis.  Because of this, another crisis of similar magnitude is inevitable.    

Additional Information:

See James Bullard (#8) for his contradictory position on the housing bubble.  See Bill Clinton (#12) for more information on his central plan for housing.  See Phil Gramm (#28) for an additional discussion on the Fed’s inability to learn from its mistakes.