Fed was stumped by crisis, transcripts of meetings in mid-crisis reveal
WASHINGTON — The Federal Reserve agonized in 2008 over how far to go to stop a financial crisis that threatened to cause a recession and at times struggled to recognize its speed and magnitude.
“We're crossing certain lines. We're doing things we haven't done before,” Chairman Ben Bernanke said as Fed officials met in an emergency session March 10 and implemented never-before-taken steps to lend to teetering Wall Street firms, among a series of unorthodox moves that year to calm investors and aid the economy.
“On the other hand, this financial crisis is now in its eighth month, and the economic outlook has worsened quite significantly.”
The Fed on Friday released hundreds of pages of transcripts covering its 14 meetings during 2008 — eight regularly scheduled meetings and six emergency sessions. The Fed releases full transcripts of each year's policy meetings after a five-year lag.
The 2008 transcripts cover the most tumultuous period of the crisis, including the collapse and rescue of investment bank Bear Stearns, the government takeover of mortgage giants Fannie Mae and Freddie Mac, the decision to let investment bank Lehman Brothers fold and the bailout of insurer American International Group.
For all its aggressive steps in 2008, the transcripts show the Fed failing at times to grasp the size of the catastrophe. Bernanke and his top lieutenants often expressed puzzlement that they weren't managing to calm panicky investors.
As late as Sept. 16, a day after Lehman Brothers filed for bankruptcy, Bernanke declared, “I think that our policy is looking actually pretty good.”
The Fed declined at that meeting to cut its benchmark short-term rate. Three weeks later, after the Fed had rescued AIG, Bernanke held an emergency conference call and won approval for a half-point rate cut.
Early in the year, some Fed officials had yet to appreciate the gravity of the crisis. In January, Frederic Mishkin, a Fed governor, missed an emergency conference call because he was “on the slopes.”
“I think in Idaho somewhere,” Bernanke said.
The transcripts show that Bernanke enjoyed the support of Janet Yellen, who succeeded him this month as Fed chair, for the unconventional policy actions he was pushing. At the time, Yellen was head of the Fed's San Francisco regional bank.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.