On Friday, the U.S. Federal Reserve released the transcripts from its vital meetings over the state of the U.S. economy from 2007 through 2009.
The transcripts provide a staggering glimpse into the world of a central bank in crisis, or at least the inability for all parties concerned to grasp the problems at hand.
Here are the five most ridiculous takeaways from the Fed Reports.The Ridiculous Fed
- The Markets Trump the Economy
For anyone who argues that the stimulus plans of the last five years have been little more than gifts to investors than help for the middle class, this is a stunning revelation. On Sept. 16, 2008, the day after Lehman Brothers collapsed, the Fed met to discuss the impact. The word "economy" was used 60 times, while the word "markets" was used 98 times (Consumers were mentioned just 21 times). Three months later, during the Dec. 16 meeting, the Fed used the word "economy" 93 times, while using the word "markets" 175 times.
As we've noted, the Fed's stimulus plans have been a boon for markets. We've seen the Dow Jones recover from March 2009 lows only to soar to record highs in five years. Meanwhile, the economy is teetering, unemployment at the U-6 levels is staggeringly high, and debt levels have reached a staggering $17 billion.
But at least the luxury goods markets are booming (more on that in a moment).
- Did Taxpayers Bail Out a Hedge Fund?
During the Dec. 16, 2008 meeting, Atlanta Federal Reserve Bank President said to Ben Bernanke that "rumors were circulating that a major hedge fund group was about to collapse and that our people were 'in,' so to speak, over the weekend."
Bernanke replied that if there "has been" any intervention in hedge funds that he "is unaware" of it. According to the transcript, this was followed by laughter.
There will be many questions about this exchange in the coming weeks.
- Some People Just Don't Get It
Philadelphia Fed President Charles Plosser is always worried about inflation, so much so that it clouds his ability to follow what's happening in the economy.
On Sept. 16, 2008, Plosser argued that loose monetary policy would stir inflation. "I remain concerned about the inflation outlook going forward," he said.
Whoops. Turns out that even with a zero-interest-rate economy, inflation fell into negative territory in 2009 and hasn't recovered to 2008 levels since, despite all the money pumping into the U.S. economy.
But for all the attention to his constant worry about inflation, it's a statement in January 2008 that really shows his inability to understand what is happening in the economy. During that meeting, he cited a Woody Allen quote and said that his conversations with 30 CEOs indicated that the U.S. economy would be fine.
"The expectation is not to be negative," he said. "My CEO soundings indicate pretty much what we have forecast as a group - much slower growth, not necessarily a recession."
- Janet Yellen's Dental Prescription
Perhaps the most random statement out of anyone during these meetings came from current Federal Reserve chair Janet Yellen.
On the day after Lehman Brothers filed for bankruptcy, Yellen offered strange evidence of economic slowdown in San Francisco: "East Bay plastic surgeons and dentists note that patients are deferring elective procedures."
The room erupted in laughter, of course. She continued.
"Reservations are no longer necessary at many high-end restaurants. And the Silicon Valley Country Club, with a $250,000 entrance fee and seven- to eight-year waiting list, has seen the number of would-be new members shrink to a mere 13."
The Fed's emphasis is strangely focused on the consumption behavior of the well-to-do.
That said, Yellen did recognize that there was a crisis on the horizon. During the same meeting that Fisher was quoting Woody Allen, Yellen touched off the day with this quote: "The severe and prolonged housing downturn and financial shock have put the economy at, if not beyond, the brink of recession."
She went on to predict the need for lower rates and increased stimulus, the two courses the Fed would take.
- Celebrating Small Accomplishments
Look no further than Ben Bernanke's statement in the April 2008 meeting, one month after Bear Stearns collapsed, to understand just how uninspiring this leadership can be.
"Let me first say that I think we ought to at least modestly congratulate ourselves that we have made some progress," Bernanke said when asked about lowering the federal funds rate... "There's a good chance that we will see further problems and further relapses, but we have made progress in reducing some of the uncertainties in the current environment."
A month later, Treasury Secretary Hank Paulson nearly declared victory. "The worst is likely to be behind us," he said during the May roster.
By mid-2008, it was already too late. Lehman Brothers was on a crash course to implosion, and AIG was collapsing. Though Bernanke recognized the risks, the sense of urgency wouldn't kick in until Lehman was days away from collapse.
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