Federal Reserve failed America in 2007
January 26, 2013 at 4:50 pm in News by Dustin Siggins 4 Comments
It is the policy of the Federal Reserve to release the minutes of Open Market Committee meetings five years after they take place. While the minutes are pretty heavy reading, the release of the 2007 meetings and the first meeting of 2008 is more important than most – it is the series of meetings that took place as the recession and financial collapse began to take shape.
I just found the minutes on Thursday – you can read them here – and haven’t had the chance to read them. Fortunately, Bloomberg had an article up on January 18, the day the minutes were released, and has summarized them fairly succinctly:
Federal Reserve officials in August 2007 saw the beginnings of the crisis in subprime mortgages and concluded that the U.S. economy would be able to withstand it, even as some Fed members warned that it could trigger a downturn, transcripts from their 2007 meetings show.
“Well-capitalized banks and opportunistic investors will come in and fill the gap, restoring credit flows to nonfinancial businesses and to the vast majority of households that can service their debts,” Donald Kohn, then vice chairman of the board, said in Aug. 2007 according to transcripts of the Federal Open Market Committee meetings released today in Washington.
Some people in the meetings offered warnings about a financial collapse, but the overall opinion appears to be that the American economy could withstand the coming recession. Obviously, the Federal Reserve’s assessment was incorrect, as shown in December 2007 as the recession hit and mid-2008 as the financial collapse fully arrived.
Since the recession started, the Reserve has lowered interest rates, engaged in over $7 trillion in loans, and generally implemented policies that are allegedly designed to improve the economy. Yet some of these policies – such as low interest rates – are policies that helped create the 2008 housing collapse.
For decades, America’s alleged betters in Washington have asked us to trust them when it comes to a whole host of public policies, from education to housing to tax policy to spending. These minutes appear to show that the best-connected people in the financial world really had no idea what was happening in the housing and financial markets. Once they did, of course, they prioritized bailing out the world’s largest banks instead of doing what’s right for the American people.
The first mistake was bailing out the banks, then bailing out the auto industry, then bailing out the housing market, the government cannot be trusted with our money …
I agree – The Fed should stop selling US Treasury bonds to supplement people’s Social Security and Medicare. Most people get more from these programs then they ever put in! Why should we go into debt because people were so irresponsible to rely on these gov’t programs to survive?
In Each case the public officials had a vested interest, if the banks been permited to fail, the true value of the American dollar wouldhave been re-established, rampant inflation and the shiny little farce of a service based economy would have been exposed.
If the auto industry had been permited a textbook bankruptcy, the graft that is the union pension funds would have collapsed, and the sybiotic relations between the unions and the Democratic party exposed, their money gone, the jobs gone, and the party slush fund gone as well.
In the case of the housing market, the normal way of establishing the true value of something is to sell it at auction, then declare the debt settled and the borrower takes the hit on his credit, the banker on his poor judgement.
Since the time of Jimmy Carter, we have sen the SEC rules re-written 4 times I can remember, each time it further degades the ability of the borrower to actualy get a fresh start, the last time is almost enslaving. But thelocal governments who get their money by taxing real-estate would have had to face the fact the mill-levies were on inflated housing pricing amd re-evaluated thier spending, something they are ill-wont to do.
The sticking point of the union pension funds was that they guaranteed money out, but not money in, they depended not on what the retiree had put in, but on the company doling out, a ponzi scheme of the first order, but we have the best law makers money can buy.