The Federal Reserve in 2008

by Bill Sweet

I'm always deeply confused by people who get angry at the Federal Reserve Bank.

It might be convenient to blame all of the world's woes on a poorly-understood government organization, and it feels good to lob grenades. But the anger is mostly misplaced.

I do agree that the modern financial system is ridiculously complex and unnecessarily opaque, and it certainly does favor certain types of entities over others. The private/public hybrid relationship between the Federal Reserve system and the economy is bizarre & difficult to explain, but that doesn't make it inherently evil. In fact, there are real and serious reasons why things are the way they are. None of this is the Fed's fault. It is far more useful to spend our time trying to figure out how to navigate and benefit from the modern financial system than to whine or engage in a fruitless Don Quixote-style quest to change it.

I digress. Yesterday, the bank released transcripts from their 2008 meetings, covering the darkest days of the financial crisis. If you have a few minutes, I strongly suggest taking a look at this New York Times feature summarizing the key highlights.

I find it useful because it is a window into what these individuals - at the highest level of finance - were seeing at the time. It is a very insightful read.

Janet Yellen - the current chairperson - emerges as a voice of reason and clarity leading into October of 2008, and also for several months prior. Remember, what is blindingly obvious in retrospect now was not exactly clear at the time. Here are two Yellen quotes from October 29th:

But we are fighting an uphill battle against falling home prices, an economy in recession, and collapsing confidence.It is not clear whether these steps
will reopen credit flows to households and businesses, especially those with less than sterling credit. (here

Given the seriousness of the situation, I believe that we should put as much stimulus into the system as we can as soon as we can. (here)

Here's the full article.