“Well the question is do you quash the bubbles? The answer’s yes, you can quash them, but not in a democratic society. I mean, I hesitate to think what would have happened if the Federal Reserve had tried to quash the dot-com boom – assuming we knew exactly what it was all about, which we didn’t, until later. All hell would have broken loose.
“The Federal Reserve’s independence would have been severely constrained, believe me. We were independent in a sense that no other agency of government can countermand the actions of the Federal Open Market Committee. But they can change the law.
“All sorts of threats were always there. One, for example, is to take the voting power away from the (Federal Reserve Bank) presidents, who statistically are demonstrably more hawkish than the politically appointed governors. All sorts of things like that could occur.
“I’m surprised the Fed’s independence wasn’t more significantly curtailed in this post-crisis era. It was curtailed slightly. The nature of the boards of the individual 12 reserve banks was altered, but not enough to fundamentally affect policy as far I’m concerned.
“If the Federal Reserve unanimously concluded that there was a major bubble underfoot and if we don’t stop it now within five years it would do in the country, the Federal Reserve could not move. It would be moving in a way which would create a countervailing political force. And we were aware of it. We never assumed that we were politically independent in the true sense of the word.