Underestimating big threats
The Fed doesn't like to be a negative Nancy, even when it may be warranted. Former Fed Chairman Alan Greenspan has a history of underplaying serious threats to the economy.
In 1996, he famously warned that tech stocks were overvalued, when he referred to the run-up in stock prices as "irrational exuberance." But he failed to follow through by tightening monetary policy.
Tech stocks continued to rally until March 2000 before Greenspan was proved right.
Then in 2005, he warned of "froth" in the red-hot real estate market. That turned out to be a gross understatement, to say the least.
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Last updated March 24 2011: 3:05 PM ET
