Yesterday the Federal Reserve released transcripts of its meetings in 2006, offering a new window into what was on the minds of some of the nation’s top economic and financial thinkers just ahead of the financial crisis and subsequent great recession. The transcripts, customarily released after five years, show that Fed leaders, armed with the best economic data available, had little idea of the glaring risks that were building in the financial system and the economy. Transcripts show meetings started off with embarrassing military salutes and gushing adulation for then Fed Chief Alan Greenspan. Here is the Washington Post:
“Trusted to look toward the future and make decisions to keep the economy strong, they spent some of their time patting their leader on the back and even found time to joke about what turned out to be early-warning signs in the markets. While Fed officials — including several who are in key positions today [like Bernanke] — were aware that the nation’s rapid increase in housing prices was coming to an end, they significantly underestimated how much damage the popping of the real estate bubble would cause in the rest of the economy.
In his first meeting as Fed chairman, in March 2006, Ben S. Bernanke noted the slowdown in the housing market. But he said he shared the view that “strong fundamentals support a relatively soft landing in housing,” adding: “I think we are unlikely to see growth being derailed by the housing market.”
Of course, we already knew how inept the world’s bankers had been in seeing the problems and risks leading into the crisis. What is more disturbing though is how little the mainstream seems to have learned from the past few years of mistakes and suffering. Today as business media clamber to follow politicians and bankers to summit after summit and hang on their every promise and projection, thoughtful people have to turn off the volume, think for themselves, and manage their risk accordingly.
