Bernanke deflects some subprime queries, but becomes briefly lucid on inequality (Plus: what is up with the fluctuating Fed?)

Amid all the hootin' and hollerin' regarding Ben Bernanke's glowing testimony today, I found this exchange, which apparently hasn't been printed elsewhere (emphasis mine):

Dodd cited a December letter he and five committee colleagues sent to regulators, including the Fed, urging them to expand consumer protections for subprime mortgage borrowers, those with weak credit who are typically subject to higher interest rates.

The response, that regulators were thinking about the issue, "was a little inadequate," Dodd told Bernanke today during the Fed chairman's semiannual appearance before the committee. Dodd said he was concerned "about the predatory lending practices that go on" in the subprime market.

Bernanke said, responding to a later question, that "distress" in the subprime market is of "significant concern" to him, though he didn't yet think it had implications for the larger economy.

"Evidently, some loans have been made that are not turning out well, to the detriment of both the lenders and the borrowers," Bernanke said.

He said the Fed and other regulators "will certainly be watching that carefully and trying to provide guidance and oversight to minimize that risk going forward."

I like these bits: no "implications for the larger economy" -- meaning when poor people get thrown out of their new homes, the "larger economy" gets barely a dent, maybe even a boost. And finally, "that risk going forward," meaning the backward part of the risk -- the part where someone is rendered into debt peonage if not utterly homeless -- means nothing to the Fed. As it should.

On the other hand, Bernanke did say this:

To retain support for policies of free trade, open borders, technological change, flexible labor markets, we need to make sure that the gains and benefits from these powerful growth-producing forces are broadly shared and that people understand that these things are good for the American economy and good for people generally in the economy.

Nearly brought a tear to my eye, that did. Not sure how he's figuring on "broadly sharing" these growth-producing forces (tax policy, maybe?), but it's a start.

In any case, the show will go on the next couple days. But there's a back story: last week, Susan B. Bies -- a centrist, expert on bank regulation, and the Fed's only woman -- stepped down in order to "spend more time with her family" (this seems an evasive reason since both her sons are adults). Her term was due to expire in 2012. Now Bush has two Fed vacancies to fill (Mark Olson -- a native Minnesotan -- resigned last June to head the SOX-begat PCAOB, which may or may not survive the relentless assault from the free-market crazies.) Additionally, the Atlanta Federal Reserve Bank announced a new president last Thursday, and the heads of both the Chicago Fed and Boston Fed have announced they will step down this year. What's going on? At first I suspected some ideological bullying from the top, but Douglas S. Roberts at BloggingStocks inadvertently suggests a more frightening reason: increasing fluidity between the supposedly independent Fed and the business community.

As for the rumors that some type of a "palace coup" is taking place at Fed, I view this as highly unlikely. There has always been turnover at the Fed. This is largely due to the attractiveness of opportunities in the private sector. Former Fed Governors can move into very lucrative, senior positions on Wall Street or start their own international consulting firms.

This is very different from the past, when often a Fed Governorship was the culmination of a long, distinguished academic career. My former academic adviser when I was a student at the Wharton School of Finance in the early 1980's was a Fed Governor as well as a distinguished economist. In contrast, Susan Bies was actually a senior executive at First Tennessee National Corp. prior to joining the Fed.

This sort of thing screams for more Congressional oversight and stricter vetting of Fed nominees. Better to have distinguished academics setting far-sighted policy than greedy bizzers ready to hop off the train at the next gold dig.