Bloomberg reports on the new Fed chiefs approach to the housing bubble. "Federal Reserve Chairman Ben S. Bernanke, like his predecessor Alan Greenspan, doesn't plan to get in the way of surging home or stock prices. Bernanke, staking out a key policy in his first month on the job, said yesterday at Princeton University that the central bank 'doesn't really have good instruments for addressing asset price bubbles should they exist, particularly if they are in one particular segment or another.'"

"Bernanke's views on dealing with rising asset prices match those of Greenspan, who was faulted by some economists for allowing a stock-price bubble to inflate in the late 1990s and for letting U.S. home prices soar in recent years."

"'To use interest rates to try to puncture the housing bubble would be a disastrously bad idea, and Bernanke obviously agrees, because he's not going to come close to doing that,' said Alan Blinder, a former Fed vice chairman. He wrote a paper last year saying Greenspan may have been the 'greatest central banker'' ever.'"

"Blinder said the Greenspan-Bernanke approach to bubbles is 'basically, you do nothing, and then the corollary to that is that you mop up after they burst to keep the financial system from taking a big fall.' Bernanke's hands-off approach has 'been his position for years, since he was an academic,' Blinder said."

"U.S. home prices have risen 55 percent in the past five years. Sales of previously owned U.S. homes fell in December to the lowest level since March 2004, evidence the five-year housing boom may be coming to an end."

"Bernanke in the past has said using interest rates to attack asset prices may damage the broader economy. 'A much better approach for the Fed in dealing with problems of financial markets is from the microeconomic point of view,' Bernanke said yesterday. 'For example, we pay a lot of attention to the supervising of banks to make sure that they are taking sound policy, making sound loans.'"

"'Bernanke is not inheriting the best of situations,' Paul Volcker said in an interview after Bernanke's speech. 'How would you like to be responsible for an economy that's dependent upon $700 billion of foreign money every year? I don't know what I would do about it, but he's going to have to do something about it sooner or later.'"