Crisis Signs Overlooked by Federal Reserve
Newly released transcripts show that Federal Reserve officials, including the Chairman Ben Bernanke, largely overlooked the financial crisis in 2007 as it hurtled its way toward the economy in the U.S. like a runaway freight train.
Even while officials at the Federal Reserve were worrying about the financial markets and more and more evidence was mounting that a meltdown in home mortgages was imminent, most of the Federal Reserve members were oblivious to what extent the crisis would damage the U.S. economy.
In August of 2007, during a committee meeting at the Federal Reserve, Bernanke said the odds were in favor of the market stabilizing. William Poole, the President of the Federal Reserve Bank in St. Louis echoed the sentiments of Bernanke by saying he bet the financial market would not fundamentally change what was already taking place in the economy.
Red warning flags however were raised by some members of the Federal Reserve. Dallas Federal Reserve President Richard Fisher said during June of 2007 that the problem at Bear Stearns created an enormous risk for the economy. However, other members of the Fed who were present at the members brushed those concerns by Fisher away.
Warning signs continued to become worse through the summer but at that time, it seemed as though Bernanke remained reluctant to act too soon. In September, at the Federal Reserve’s monthly meeting, the Chairman said it was not the business of the Fed to bail out individuals or businesses.
Even in December, as the crisis was starting to grip the country, Bernanke said that he still did not expect insolvency to be a problem amongst the larger financial institutions. Nevertheless, the economy was already in a nosedive toward recession.