[Copernicus]

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He doesnt say he didnt recognize that it COULD happen. He says he didnt realize the EXTENT to which it happened. It isn't suprising that he wasnt focused on it then, since it was in only in late 2005 and early 2006 that subprime originations took off, and at the time he was busy handing off the job to BB.

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Somehow this doesn't make me feel like the value of my dollars are any more secure.

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Why? There was an overreaction to a minor issue that will work its way through the system. Those kinds of shocks will always happen...not all of them can be anticipated. What is more important is the reaction to those shocks and keeping them from getting out of hand and having long lasting repercussions.

The market has absorbed subprime at this point, and has withstood a terrible jobs report, that, at least to a great extent, was a reaction to subprime. Is recesssion in the near future possible? Of course, bull markets do come to an end, or they wouldnt be any bull and bear markets. On the whole though, fundamentals are still strong.

If anything the whole situation should make you feel MORE confident.

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It seems like your saying that the market has absorbed the sub-prime debacle in spite of the actions of the fed, which I mostly agree with. Although, you could arguing that it was the fed's response that allowed the market to react effectively... I'm not sure. In any case, it's not really salient to the point I'm making. The reason I said that I wasn't any more comfortable is that, however you slice it, our monetary policy is governed by a very small number of very powerful men. There are some factors that push their behavior in the right direction sure, but the fact remains that we rely on a small group to be not only benevolent, but competent to boot in order to keep our economy on track. Even if you could convincingly argue that this system is +EV I don't think we have a big enough bankroll to handle the variance.

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No, I was not arguing "in spite of". While I don't think Fed action was quick enough or decisive enough, it appears so far to have helped.

Benevolence is a non-issue raised be conspiracy nuts and irrelevant. Competence is obviously not guaranteed. However, with regard to to inflation and the moderating the valleys of the business cycle the Fed has demonstrated a growing ability to reduce the variance you are so worried about. Economic theory that isnt supported by empirical data is worth just about the cost of the paper and ink it took to write it down. The Fed has come a long way, even if by trial and error and learning from that empirical data, and I see no reason to think that it wont continue to improve.