As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.
The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation's pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with supervising. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.
The results are unlikely to burnish any of their reputations, inasmuch as they could not see the widening cracks beneath their feet. But the Fed's chairman, Ben S. Bernanke, appears as the most consistent voice of warning that problems in the housing market could have broader consequences.
One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector and financial markets had become. They also were convinced that financial innovations, by distributing the risk of losses more broadly, had increased the strength and resilience of the system as a whole.
For more, see Inside the Fed in 2006: A Coming Crisis, and Banter by , January 12, 2012 at NYTimes.com.
No comments:
Post a Comment