- The Washington Times - Wednesday, September 17, 2008

Publishing tycoon and former Republican presidential candidate Steve Forbes on Wednesday urged people to put the crisis on Wall Street in perspective, saying it “will quickly pass” so long as the Bush administration and financial regulators strengthen the dollar and enforce rules on the short-selling of securities.

“Put things in perspective — we will get over it,” Mr. Forbes said in a speech hosted by the Ad Club of Metropolitan Washington Wednesday morning. “But if we continue doing dumb things like make monetary mistakes, raise taxes, do crazy things on the regulatory side, you can get a real disaster on your hands.”

While he said there is plenty of blame to go around, Mr. Forbes strongly criticized the Federal Reserve, calling it the “big enabler” that allowed the crisis to reach its current magnitude.

“Long story short, in 2004 the Federal Reserve, then headed by Alan Greenspan, made a fatal miscalculation,” he said. “They underestimated the U.S. economy. They printed a lot of money because they thought the economy needed it and the engine flooded.”

As a result, Mr. Forbes said, commodity prices shot up and the domestic economy became distorted. Housing prices were already going up and the influx of money led people to build and buy more houses, lending standards eroded and a subprime mortgage crisis erupted, he said.

“It just went berserk. A classic bubble and thanks to high technology, global economy, securitization, it took on proportions it had never done before in history,” he said. “So how did the Fed respond? Having gone on one drinking binge, it went on another: It cranked up the money press again.”

The Treasury Department should have told regulators to “back off” at that time, but instead praised the move, said Mr. Forbes, who called the Fed’s “weak dollar policy” the “biggest mistake of the Bush administration.”

But despite the crisis — underscored by the bankruptcy of Lehman Brothers on Monday and the government bailout of global insurer AIG Tuesday night — the markets have held up well “in the face of massive financial collapses,” he said.

The Fed should redefine its mission as “focusing on a stable currency and dealing with panics,” he said. It should start to soak up some of the excess money it created and the Treasury Department should announce a strong dollar policy, he said, adding that financial regulators should try to standardize “these exotic instruments” that have been created by Wall Street.

“There’s a lot of resilience out there. That’s why they’ve got to start making some sensible changes and we’ll get through this.”

In the meantime, American investors should stay calm, he said.

“This is precisely the time [you] don’t give into your emotions. Your emotions are your enemy.”

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