BUSTED: Unsealed Docs Show The Fed Was Fully Warned Of A Housing Crisis

[D-Mack]

New minutes released today show Fed members were fully aware of the growing housing bubble in the U.S. in June of 2005. The materials include several presentations made on the subject of the emerging housing bubble in the U.S. economy. They have titles like "Is Housing Overvalued?" by Joshua Gallin and "Monetary Policy Implications of a House Price Bubble" by John C. Williams of the San Francisco Fed.
In October of 2005, future Federal Reserve Chairman Ben Bernanke told Congress he didn't think we were in a housing bubble. Bernanke was not at the June 2005 meeting, having recently become Chairman of President George W. Bush's Council of Economic Advisers.

Read more: http://www.businessinsider.com/feder...#ixzz1B3zGvgoV

[Slimprofits]

Re: BUSTED: Unsealed Docs Show The Fed Was Fully Warned Of A Housing Crisis

Can't wait for the official spin on this.

[Slimprofits]

Re: BUSTED: Unsealed Docs Show The Fed Was Fully Warned Of A Housing Crisis

Ok lets check the reactions.

http://www.ft.com/cms/s/0/54030186-2...44feab49a.html

But the FOMC wrongly believed that securitisation was taking all the risk away from banks and passing it on to other investors such as hedge funds. “There are many new investors, including the hedge funds, with minimal experience in dealing with market uncertainties,” Mr Olson said.

The FOMC agreed that there was not much it could do about house prices with monetary policy, but Tim Geithner, then president of the New York Fed, asked about using bank supervision to reduce lending and control the rise in house prices.

This kind of “macro-prudential” policy is now in fashion and central bankers hope to use it to stop any future crisis, but in 2005 Mr Geithner’s colleagues assured him that it had been tried in previous decades and it had not worked very well.

The cry of the scumbag:

http://online.wsj.com/article/SB1000...921593064.html

"I get very irritated when I see columns suggesting that we are trying to inspire or should be trying to prick a housing bubble," said Fed Governor Edward Gramlich, who died in 2007. "There is no way to do that and still maximize the inflation/unemployment outcome. Monetary policy is broad and has broad effects."

William Poole, then president of the St. Louis Fed, knocked down the idea of the Fed tackling asset-price bubbles. "It seems to me that that would change the whole nature of the pricing mechanism in asset markets. And I think it would be a terrible idea in a market economy to have a government agency setting capital asset values."

haha market economy.

Janet Yellen, then the San Francisco Fed president and now the Fed vice chairman, said at the June 2005 meeting that newer financing options, such as interest-only mortgages, were widely viewed as "feeding a kind of unsustainable bubble." But she suggested that higher prices themselves were "curtailing effective demand for housing at this point and that house appreciation probably is poised to slow. So the increasing use of creative financing could be a sign of the final gasps of house-price appreciation at the pace we've seen and an indication that a slowing is at hand."

Aside from reviewing complex models for home prices and the economy, one central-bank economist, David Stockton, even presented officials later that year with a piece of anecdotal evidence that "almost surely suggests that the end is near in this sector."

Mr. Stockton had been channel-surfing and came across a new television series "Flip That House," he told central bankers in the Fed's boardroom, drawing laughter.

"As far as I could tell, the gist of the show was that with some spackling, a few strategically placed azaleas, and access to a bank, you too could tap into the great real estate wealth machine," he said. "It was enough to put even the most ardent believer in market efficiency into existential crisis."

So they laughed and shrugged off all responsibility....

[Slimprofits]

Re: BUSTED: Unsealed Docs Show The Fed Was Fully Warned Of A Housing Crisis

oh it gets better

http://www.bloomberg.com/news/2011-0...increases.html

Greenspan in December still argued against dropping the word “measured” from the statement “because that would imply that we’re really beginning to see developments out there that are moving very rapidly, and I think it’s too soon to conclude that.”

“Whatever froth there is in the housing market is becoming contained at this stage, and it’s getting contained largely because mortgage rates have moved up and are beginning to have an impact,” Greenspan said, according to the transcripts. “If we can contain the presumptive housing bubble, then we have a really remarkable run out there.”

Greenspan’s spokeswoman, Katie Broom, didn’t respond to an email seeking comment.

[zoog]

Re: BUSTED: Unsealed Docs Show The Fed Was Fully Warned Of A Housing Crisis

"If discovered . . . you should A) express concern, B) act surprised, C) deny everything, and D) all three. The answer is D, all three."