Elite Expert Fail

Fed’s image tarnished by newly released documents by Zachary Goldfarb

Wasn't it already?

In the six years since, Greenspan’s record — seemingly so sterling when he left the central bank after 18 years — has come under substantial criticism from outside economists and analysts. Many say a range of Fed policies under his watch contributed to the financial crisis, including keeping interest rates low for too long, failing to take action to stem the housing bubble and allowing inadequate oversight of financial firms.

Isn't it a conservative complaint that Greenspan kept rates too low for too long? Does it hold up poorly like every other one of their talking points?

In Fed Officials’ 2006 Meetings, No Deep Worry on Housing by Binyamin Appelbaum

One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector and financial markets had become. They also were convinced that financial innovations, by distributing the risk of losses more broadly, had increased the strength and resilience of the system as a whole.

“I would say that the capital markets are probably more profitable and more robust at this moment, or at least going into the six-week opportunity, than they have perhaps ever been,” Kevin Warsh, the Fed governor who watched Wall Street most closely [and young Bush appointee who quit], said at the meeting in September 2006. Three months later Mr. Warsh said almost exactly the same thing. He did not respond to an e-mail seeking comment Thursday.

For the Fed 2006 began with the departure of Mr. Greenspan, who presided in January over his final meeting as Fed chairman and was then widely regarded as the epitome of a central banker, a master who had guided the American economy through almost 20 years of remarkably consistent growth.

“I’d like the record to show that I think you’re pretty terrific, too,” Mr. Geithner said in adding his voice to the chorus of tributes at that final meeting. “And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.”

Ms. Yellen said: “It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.”

Why We Listen to Paul Krugman: The Balance of Macroeconomic Risks in the Summer of 2006 Department by DeLong


There Is No Bubble and Even if There Is It's Not a Problem... by Thoma

Monetary Witchcraft by Yglesias