This brouhaha over the Boston Fed's rationalization for missing the housing bubble reminds me of a conversation I overheard a few weeks ago between a former Federal Reserve bank supervisor and his counterpart at the New York Fed.

I can't give you their names since they were conversing privately a few feet away from me before the start of a conference on financial regulation (nor can I give you the name of the confab since that would give their identities away), and I just managed to overhear the exchange.

The key part was that the New York Fed guy told the former Washington Fed guy that New York Fed bank regulators were indeed worried about banks' balance sheets as the housing bubble grew but didn't act because they were told by the New York Fed's economists, and one in particular who carried a lot of weight, that there wasn't any such bubble.

So for you fellow Fed bashers out there, it would probably help not to tar everyone within the system with the same broad brush.

In fact, the problem may lie more with the economists there than with the regulators, at least based on my experience. Of course, who said regulators have to listen to economists in the first place?

Maybe that's the real problem. And that also reminds me of the endless criticism that the SEC gets, or at least used to, for having too many lawyers and not enough economists.

Maybe it's time to let the regulators and lawyers do what they think best, and to drive the economists from the temple along with the money changers.