Dimwittedness At The Fed. "Experts" Get The Little Stuff; Miss The Big Stuff

Alan: Government is good at incrementalism; poor-to-lousy at epochal change.

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Fed misread crisis in 2008, records show. "On the morning after Lehman Brothers filed for bankruptcy in 2008, most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis. The Fed's policy-making committee voted unanimously against bolstering the economy by cutting interest rates, and several officials praised what they described as the decision to let Lehman fail, saying it would help to restore a sense of accountability on Wall Street...The hundreds of pages of transcripts, based on recordings made at the time, reveal the ignorance of Fed officials about economic conditions during the climactic months of the financial crisis. Officials repeatedly fretted about overstimulating the economy, only to realize time and again that they needed to redouble efforts to contain the crisis. The Fed's chairman at the time, Ben S. Bernanke, was unusually clearsighted in warning of the risk of a severe recession as the nation entered into a presidential election year. But he struggled to persuade his colleagues, and at crucial junctures he did not push forcefully for stronger action." Binyamin Appelbaum in The New York Times.

Primary source: Read the 2008 Fed transcripts for yourself here.

Check this out: The New York Times has a cool interactive tool for the Fed transcripts.

As crisis loomed, Yellen made wry and forceful calls for action. "What the transcripts show is a woman who was constantly pushing her peers -- and also cleverly cajoling them -- to do more to help ordinary households, not just financial institutions. At the same time, she urged her colleagues to look at the flaws in the banks that caused the crisis in the first place. "I don't believe in gradualism in circumstances like these," Ms. Yellen said in March 2008, months before the situation came to a boil. In the end, during the most terrifying moments, Ms. Yellen helped persuade even the staunchest opponents of more aggressive actions to go along with the policies that the head of the Fed, Ben S. Bernanke, wanted." Nathaniel Popper in The New York Times.