Documents reveal Fed failed to read the coming mortgage finance bust
13 January 2012
Ben Bernanke presided over his first meeting as Federal Reserve chairman in March 2006. He believed at the time that the US economy could make a "soft landing" from falling home prices, however three months into his job Bernanke had realised that he and others had grossly underestimated the risk housing posed to the economy.
Newly released transcripts of Fed meetings in Bernanke's first year as chairman bring out that, among Fed officials, he often expressed the gravest concern about housing, yet no official, the transcripts reveal had an idea of the extent of the damage a housing bubble would cause. The housing market that collapsed a year later helped send the nation into its worst recession since the Great Depression.
In fact, treasury secretary Timothy Geithner, who was a Fed official then, had confidently asserted in September 2006 that "collateral damage" from housing could be avoided.
The transcripts released yesterday cover the eight meetings of the central bank's chief policy-making body, the Federal Open Market Committee (FOMC), during 2006. That committee included the last meeting of Federal Reserve chairman Alan Greenspan in January in the year and Bernanke's first meeting in March following his taking over as chairman from Greenspan.
The Fed releases minutes of the FOMC discussions three weeks after the meetings but full transcripts are released only after five years.
The transcripts for 2006 reveal that Bernanke had not expressed concern over the cooling off of the housing market following a boom that had pushed sales and home prices to record levels.