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Inside the Fed circa 2006: They couldn't have been more wrong.
January 14, 2012 12:11 AM

The NY Times recently reported on the minutes released of meetings at the Federal Reserve back in 2006 on the eve of the massive housing crises that gave us The Great Recession. Read it and weep:

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 officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was "rising through the roof."

But the officials, meeting every six weeks to discuss the health of the nation's economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation -- the possibility that the economy would grow too fast.

"We think the fundamentals of the expansion going forward still look good," Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006.

Some officials, including Susan Bies, a Fed governor, suggested that a housing downturn actually could bolster the economy by redirecting money to other kinds of investments.

Yet the most egregious part of this story is that many of the same folks are still in positions of power and pontificating that all's well on the economic front. Hello, Tim Geithner!

Krugman's got something to say about this, as well:

Two puzzling things: first, the housing bubble was the clearest thing I've ever seen in my professional life. How could they ignore even the possibility of a severe bust?

Second, some of the same people you read in these transcripts dismissing risks to the real economy and worrying wrongly about inflation are still making policy pronouncements, in which they … dismiss risks to the real economy and worry wrongly about inflation.

You should be scared...very...very ...scared.

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