The Fed released transcripts from meetings in 2006 today that reveal just how badly its top officials blew it on the looming housing crisis, the New York Times reports. The industry was showing signs of distress, but the Fed's attitude boiled down to, eh, no big deal. The officials clearly did not grasp how "deeply intertwined the housing sector and financial markets had become," writes Binyamin Appelbaum. They would get the picture soon enough. Some highlights:
- Timothy Geithner (then with the New York Fed): “We think the fundamentals of the expansion going forward still look good," he said in December 2006. A few months earlier: “We just don’t see troubling signs yet of collateral damage, and we are not expecting much."
- Ben Bernanke: At his first meeting as chair in March: “Again, I think we are unlikely to see growth being derailed by the housing market.” In September, he was cooler: "I don’t have quite as much confidence as some people around the table that there will be no spillover effect," though he didn't come close to predicting just how bad things would be.
- Janet Yellen (of the San Francisco Fed): “Of course, housing is a relatively small sector of the economy, and its decline should be self correcting," she said in October. Earlier, noting the handover in Fed leadership from Alan Greenspan to Bernanke: “The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot."