Transcripts show how Fed took time to understand scale of crisis


Transcripts of FOMC meetings during the financial crisis in 2008 provide an insider's view into how the Fed dealt with the ever-growing disaster, including the rescue of Bear Stearns, Lehman Brothers' bankruptcy filing and the bailout of AIG.

"My initial takeaway...is that they paint a disturbing picture of a central bank that was in the dark about each looming disaster throughout 2008," writes Gretchen Morgenson in the NYT, "That meant that the nation's top bank regulators were unprepared to deal with the consequences of each new event."

In March 2008, for example, then NY Fed chief Timothy Geithner thought banks were adequately capitalized.

The NYT also profiles Janet Yellen's role, saying she "often became the most outspoken defender of the (Fed's activist) policies, and a reference point for others."

For an edited version of the transcripts, click here.

Comments (14)
  • bbro
    , contributor
    Comments (11195) | Send Message
     
    Gretchen Morgenson is one of the last financial journalists I expect to give a balanced view
    of what happened...a poor woman's Zoe Barnes....
    23 Feb 2014, 09:01 AM Reply Like
  • freed0m
    , contributor
    Comments (1150) | Send Message
     
    To know what could happen and to know what exactly is happening and is going to happen are completely different things. No one could foresee how the crisis was developing and was going to develop.

     

    A lot of people may predict that a crisis was developing at that time. But that is useless without quantifying the development of the crisis and providing the solution against it.
    23 Feb 2014, 09:11 AM Reply Like
  • bgold1955
    , contributor
    Comments (2350) | Send Message
     
    When Bear Stearns failed in March 2008 & then IndyMac in July 2008 was enough proof for me to go all cash. There were warning signs at the end of 2007.
    23 Feb 2014, 11:04 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4291) | Send Message
     
    What are you doing now?
    23 Feb 2014, 04:57 PM Reply Like
  • wyostocks
    , contributor
    Comments (9112) | Send Message
     
    Simply confirms that the Fed hasn't a clue.
    However, we are to believe them that this time is different and they know exactly what they are doing and can handle a four trillion dollar balance sheet with no adverse impacts on the future.
    Sure.
    23 Feb 2014, 09:29 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4291) | Send Message
     
    The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.
    Friedrich Hayek
    The Fatal Conceit : The Errors of Socialism (1988), p. 76
    23 Feb 2014, 09:50 AM Reply Like
  • AllStreets
    , contributor
    Comments (1457) | Send Message
     
    It is simply not credible that the Fed did not understand what a monumental financial crisis was in progress, because they and all the other bank regulators in the country deliberately created it on September 26, 2006 when they summarily shut down all alternative mortgage lending and condemned all subprime ARM borrowers to default via their radically new rules published in the "Interagency Guidance on Nontraditional Mortgage Product Risks" published on October 6, 2006. Even I, a lowly part time mortgage originator for the prior three years, could foresee that the new rules would cause a monumental mortgage crisis, a housing crisis, a financial crisis and a deep recession as I predicted in my testimony to the Fed regarding the proposed rules.

     

    It was also easy to foresee that any housing crisis due to radical mortgage lending overhaul would render practically worthless a huge portion of the many 90-100% CLTV second mortgages held by their own members. If Fed members and other bank regulators could not foresee the disastrous consequences of their overly ambitious mortgage overhaul, then they shouldn't have been qualified to be in their positions. They even had more than two years after the Guidance was published to watch the inevitable slow motion train wreck it was causing in the mortgage and housing industry and to gauge the growing effects on the financial system. It was not too hard to predict that the credit default swaps relating to mortgages were going to pay off, and how that would affect AIG and others.
    23 Feb 2014, 11:26 AM Reply Like
  • Tack
    , contributor
    Comments (16180) | Send Message
     
    The advent of 125% "no-docs" loans guaranteed fraud, default and chaos, regardless of any subsequent policies. While the fact that there existed relatively cheap money from the Fed in the system contributed, the end result was guaranteed by Congressional lending mandates and a complete surrender of bank underwriting standards to such mandates.
    23 Feb 2014, 12:57 PM Reply Like
  • User 509088
    , contributor
    Comments (1681) | Send Message
     
    everyone had partaken of the kool aid of trickle down etc etc etc.

     

    you don't get that high through arguing. in fact, the c suite types specifically mandated their teams to agree with them or hit the bricks.

     

    I love the shocked outrage of those who heard the warnings, profited from it, and now want to make the whole problem about regulators taken from the ranks of the regulated, who had been told their jobs were to get out of the way of the poor victims who had been so cruelly regulated (arf!) for so long.

     

    the dogma of laissez faire capitalism was run over by the karma of large numbers and the concrete fact that workers are the same as consumers, whether we want to admit it or not.

     

    this latest, weakest generation needed a reminder of why we keep coming back to needing police and regulators. because we cheat.
    23 Feb 2014, 12:27 PM Reply Like
  • IncomeYield
    , contributor
    Comments (3686) | Send Message
     
    The beauty of the whole mess was the "too big to fail". The players were playing with taxpayer and depositor money. And shorting the very instruments they sold to unsuspecting clients. Heads I win, tails you lose, or whatever cliché you want to use.

     

    This will be lectured about 50 years from now in the B-schools as a thing of beauty. :)

     

    The task at hand is to figure out what the players are up to now and try to get out front or buy protection.
    23 Feb 2014, 12:45 PM Reply Like
  • Ted Bear
    , contributor
    Comments (697) | Send Message
     
    It's one thing to kick the can down a long, dark alley while a gang of thugs presses you deeper and deeper into the abyss.

     

    That's the easy part.

     

    The moment when your back is finally to the wall, the can is all but disintegrated, and the thugs have their knives at your neck ...that's when you find out if your strategy has merit.

     

    Or not.

     

    We're only half way into the Fed's grandiose plan. The most difficult work is still ahead.
    23 Feb 2014, 01:35 PM Reply Like
  • heisenberg.hedge
    , contributor
    Comments (5) | Send Message
     
    It is simply frightening when you read the minutes. The anecdotes that they share demonstrate how out of touch with the situation they actually were. Had these aloof, master of the universe stuffed suits actually called and talked to Treasurers of small, large, and mega corporations one a month to get feedback regarding how easy or hard it was to roll over CP or issue debt they would have real information regarding what was happening on Main Street America. We all should be very afraid as the minutes prove these guys and girls are amateurs executing policy that makes blood letting look like real science. Godspeed.
    23 Feb 2014, 01:47 PM Reply Like
  • wyostocks
    , contributor
    Comments (9112) | Send Message
     
    heisenberg....

     

    Never mind talking to Treasurers, do you think the bastards ever ventured onto Main Street and saw what their ZIRP policy was doing to the common man / woman?

     

    However, if they did that they might have had to admit that the only concern they have is for the next million dollar bonuses paid to the bankers.
    23 Feb 2014, 03:05 PM Reply Like
  • into dark shadows
    , contributor
    Comments (459) | Send Message
     
    Agree with all said! But one thing I might add is their complacency and to admit that they even thought about any problem would indict them and their FAILED policies!
    Remember, Greenspan till this day accepts no responsibility for his egregious actions that caused the first MASSIVE bubble in 2000!
    The officials of today and yesterday are nothing more than progressive talking heads and at worst minions of the likes of George Soros and his plethora of "One World Order" institutes!
    Just look at Common Core, Bill Gates and his henchmen are all over this like stink on you know what! Hey Bill, just how much is enough for Microsoft?
    The free market has not been "FREE" since Hank Paulson whipped out the bazooka!
    God save the Republic!
    23 Feb 2014, 02:34 PM Reply Like
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