The 2006 transcripts of the meetings of the Federal Open Market Committee (FOMC), the chief decision making body of the US Federal Reserve system has made good fodder for several economics and finance reporters since their release late last week. Several commentators have chosen to just pick up some choice quotes from the minutes including the Financial Times’ Alphaville blog. The best I have found so far is the Atlantic, from where I have taken the title to this post. It compares the Fed’s leaders to the pilots of Air France’s ill-fated AF447, which crashed into the ocean due to a combination of worsening flying conditions and the pilots not responding to incoming warnings.
By 2006, it was apparent that the US housing market was coming apart. Evidence on the ground and through statistics was already telling a tale of slowdown. I remember being in a fixed income conference in Europe in 2005, where there was near unanimous view that the US economy would slow on the back of a housing slowdown.
The lack of appreciation for this in the corridors of economic power is what astonishes anyone reading these transcripts. FOMC chairman Bernanke seems to be the only one warning of a wider impact of the housing crash on the macro economic landscape. Others including then vice-chairman and now US Secretary of the Treasury Tim Geithner seemed to have had no sense of the impending doom. The fact that the same slate of people remain in charge today under a different President is a question mark on the state of political decision making in the United States.
The choicest quote goes to Geithner speaking to Greenspan on the maestro’s last meeting as chair: I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.
Should we start using the word maestro to mean something else? A Nero like behaviour of fiddling while Rome burnt?