Other federal agencies are responsible for the supervision and regulation of the rest of the financial system.
And then there is the principle of caveat emptor – the key institutional mechanism in free markets and free economies.
Never mind – blame the Fed
This, however, sounds too complicated to most observers looking for impressive punch-lines. Even those who should understand the difference tend to "explain" everything as a direct consequence of Fed's policies.
So, let's put them in Fed's shoes and ask them the following question: How would they respond – within the policy mandate – to a situation of sluggish economic growth, an actual unemployment rate of 11 percent, an inflation rate of 0 percent, tightening fiscal policy and the dollar's punishing 20 percent trade-weighted appreciation over the last twelve months?
Under these circumstances, how would they justify to the American public an interest rate hike?
Argue in favor of a "preemptive strike" to prevent future inflation flare-ups? In that case, here is what they would have to show.
Read MoreFed members torn over rate hike timing, with some seeing 2016,minutes show
First, they would have to produce credible evidence indicating rising wages and prices as a result of growing capacity pressures in labor and product markets. Second, they would have to demonstrate that the economy's current cyclical conditions are strong enough to support these rising capacity pressures over the relevant policy horizon.
Yes, serious public policy is not made on hunches "this reminds me of …", or on loose talk of "I don't know how we get out of this …"
But just in case you think I am too soft on my former colleagues, let me remind you of what I firmly believe: The extraordinary monetary policy we have now had for about six years is a result of Fed's huge and unforgivable errors leading up to the last financial crisis. The four-fold increase of the Fed's balance sheet over that period was necessary to bail out a poorly supervised banking system and to prevent the country's economic collapse.
Watch the Fed – and the Congress
That is the unprecedented situation we have now – a totally uncharted territory with no Ariadne's thread to lead us to clear exit signs.
Eventually, we shall find our way out, but it is important to remember the horrible lesson we are still going through.