Evidently not. Another reason to like Texas. Richard Fisher was the ONLY Federal Reserve Governor who saw the disaster coming. Bernanke, Geithner and the rest of the moron were either too stupid or too captured by Wall Street to understand what was about to happen. And these idiots are still in charge. Can you believe these people are the ones who are supposedly saving the world now? Read this dialogue from 2007 to see what an idiot Bernanke and the rest of them truly are:
Back in late Spring of 2007 (May 9th), while many on the FOMC felt housing problems might be contained, Fisher worried allowed (much lifted from WSJ 1/18/13):
May 9, Dallas Fed President Richard Fisher: “On the housing front, I have been bearish–more bearish than anybody at this table…I am more concerned than I was before. We can go through the numbers, but I think it is best expressed by the CEO of one of the five big builders, who said that in March he was arguing internally with his board that the headlines were worse than reality and now reality is worse than the headlines.”
Apparently, Chairman Bernanke did not wish to rock the boat.
May 9, Mr. Bernanke: “I just want to make the observation that for almost a year now we have taken a very steady approach…During the period, the markets and the general view have gone up and gone down, and we have maintained a pretty even keel. That increases confidence in the institution and, unless we have a reason to change our view, we should continue to stay on a steady path.”
At the late June (27/28) meeting, as things began to worsen, they reviewed some of the implications of the problems at Bear Stearns. Secretary Geithner, then NY Fed President led:
June 27-28, Mr. Geithner on problems emerging at a Bear Stearns hedge fund (the bank would collapse in 2008): “Direct exposure of the counterparties to Bear Stearns is very, very small compared with other things.”
Mr. Fisher apparently responded:
June 27-28, Mr. Fisher: “I was once a hedge-fund manager–I know all the tricks that are played there, including, by the way, the valuation of underlying securities–in a day when the business was less sophisticated than it is now. I don’t feel I understand this issue…I don’t think the issue is contained. I do think there is enormous risk.”
By the next meeting (August 7th), Mr. Fisher’s concern and exasperation were becoming very evident as seen in this exchange. It starts with current NY Fed President (then chief of the open market desk) Dudley:
Aug. 7, Mr. Dudley: “We’ve done quite a bit of work trying to identify some of the funding questions surrounding Bear Stearns, Countrywide, and some of the commercial-paper programs. There is some strain, but so far it looks as though nothing is really imminent in those areas. Now, could that change quickly? Absolutely.”
Aug. 7, Mr. Fisher: “No amount of rewriting of history will exonerate us if we are not prepared for the more-dire scenarios that were presented by the staff. I would ask that we do some scenario preparation in terms of, should we encounter increased financial-market turbulence, what actions we might take to deal with it.”
Aug. 7, Mr. Bernanke: “I think the odds are that the market will stabilize. Most credits are pretty strong except for parts of the mortgage market.”
Dallas Fed president warned of housing crisis and Bear Stearns worries early in 2007
By SHERYL JEAN
SHERYL JEAN The Dallas Morning News
Published: 21 January 2013 09:17 PM
Then-New York Fed President Timothy Geithner, now U.S. treasury secretary, and others disagreed and brushed off Fisher’s concerns. Bear Stearns collapsed in March 2008 — an early casualty of the financial crisis that led to the start of the Great Recession in December 2007.
Newly released transcripts from the Federal Reserve Bank’s policy meetings in 2007 (available at federalreserve.gov/monetarypolicy/fomchistorical2007.htm) highlight such inner workings of the central bank’s policymakers as the United States sat at the edge of a financial precipice. Although Fisher was a nonvoting member of the Federal Open Market Committee in 2012 (and this year), he attends meetings and participates in discussions.
Fisher also had expressed his growing concern about a housing credit crisis at the May 2007 Federal Open Market Committee meeting, according to the transcripts.
On Monday, Fisher talked with The News about his role at the Fed during that pivotal year.
Why were you the first FOMC member to warn about Bear Stearns in June 2007 or before?
I have a different background and take a different perspective than my FOMC colleagues. Most of my colleagues are Ph.D.s and I’m an MBA [from Stanford University with a bachelor’s degree in economics from Harvard University]. I was picking this up on the street, and you could see this in the credit default spreads. I also interview about 50 CEOS on large, medium and small companies around the world. I get to 30 to 35 in the week before each FOMC meeting. I can’t say who they are.
There were pressures developing elsewhere, too, such as at Merrill Lynch. I think others did pick it up. Eric Rosengren, president of the Boston Fed, and I talked quite a bit about this offline.
How did your background as a hedge fund manger help you spot warning signs?
I think it helps to have that background and to have a market operating background. Now there are two bankers on the FOMC board, but not then. Most theoretically trained economists work off of models, and data is history. On the housing credit side, the Dallas Fed was way ahead of others on that front because we were talking to homebuilders. You could see it building, but not showing up in the data yet. This is why we have different types of people on the Federal Open Market Committee.
In August 2007, Fed Chairman Ben Bernanke said, “Odds are that the market will stabilize.” Even as he considered interest rate cuts in December 2007, he felt “quite conflicted.” Why did it take him so much longer to see the economic downturn?
I don’t want to be critical of the Fed chairman. He has one of the greatest economic minds in the world. I think serious economists tend to downplay anecdotal evidence. Over the years, I’ve sorted out the Eeyores from the Tiggers [characters from Winnie-the-Pooh books]. There are some who are always negative and others who are always bouncing. It’s a combination of anecdotal evidence and theoretical data. Now, more members of the Federal Open Market Committee do pick up key signs from their districts.
In May 2007, you voiced growing concern about the housing market based on an interview with a CEO of one of the five big builders. What other signs did you see?
I spoke to the Texas Mortgage Bankers Association. I was by far the oldest person in the room. There was no institutional memory, and these people were packaging and selling packages of mortgages.
In January 2007, you said the risk of recession had declined based on interviews with 25 CEOs including at Disney, MasterCard and Wal-Mart. But two months later, you said the risk had increased and “the financial market turbulence has a potential to become greater.” Is that proof that anecdotes are not a good economic indicator on their own?
No, it means I had rethought and refined my questions for my interlocutors, and listened more carefully. The point is that anecdotal input is a necessary complement to data. Data is history but useful for validating trends; anecdotal evidence, carefully listened to, is a helpful way to identify possible trends. Business operators are the front line of the economy. What they report back is vital to understanding what policymakers take into account in developing strategy.
In hindsight, could you have done more, done anything differently in 2007?
It’s a group process. Nineteen of us sit at the table. Back then it was 17. It doesn’t matter if you have a vote or not. Everybody puts out and it gets digested. I don’t think there was more that I could have done. I think I was just doing my part.
If President Barack Obama decides to replace Bernanke for his second term, would you consider the chairmanship?
I have no interest in going back to Washington ever. I’ve done it twice [as assistant to the treasury secretary from 1978 to 1979 and deputy U.S. trade representative from 1997 to 2001]. I love Dallas. I really have done my duty. I wouldn’t rule out Ben staying on for another term.