Mark Thoma
Mark Thoma - 
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KAI RYSSDAL: In a speech yesterday, the chairman of the Federal Reserve all but promised an interest rate cut the next time the Fed meets. Analysts and economists took some solace. Wall Street got a nice little bump. But plenty of people are still asking: What took you so long, Ben? Commentator Mark Thoma says it's time to lay off the Fed.

MARK THOMA: The Bernanke Fed didn't create many of today's problems. They can be traced to the Alan Greenspan era. Low interest rates and lack of regulatory oversight during Greenspan's tenure helped to inflate the mortgage bubble.

So the Bernanke Fed didn't create the problems, it inherited them. But that doesn't let the Fed off the hook completely. The Fed still has to manage the crisis it inherited.

The Fed can't fix every problem the economy might experience. It can help to dislodge liquidity bottlenecks and provide stimulus through lower interest rates. But the Fed can't do much to recover what's gone once it's gone.

Listening to Greenspan recently and remembering what he said in the past, it's not at all clear he would have acknowledged the severity of the housing downturn any earlier than today's Fed chairman, or managed the crisis any better.

But I don't think this matters much in terms of how deep the downturn will be, and I'm doubtful different leadership at the Fed would have made much of a difference. So if this is the basis for the declining lack of faith in the Fed, I think it's unfair.

And there is a positive side. Market participants didn't properly account for risk -- they had too much confidence in the ability of the Greenspan Fed to insulate the economy and financial markets from large fluctuations. That's why they got so exuberant. They gave the Fed too much credit for the "Great Moderation."

If current market troubles wake these participants up to the risks they face, not because they think the Fed is incapable, but because they now get the risky nature of their environment, that will put a damper on the self-feeding financial frenzies.

And that would be a healthy development for us all.

RYSSDAL: Mark Thoma is a professor of economics at the University of Oregon. He blogs at The Economist's View.