Our genius overlords
Everybody's having lots of fun with the recently released Fed transcripts from 2008. The NY Times highlighted this illuminating moment:
My initial takeaway from these voluminous transcripts is that they paint a disturbing picture of a central bank that was in the dark about each looming disaster throughout 2008. That meant that the nation’s top bank regulators were unprepared to deal with the consequences of each new event.
Consider comments about the strength of the United States banking system made at the meeting on March 18, 2008. This sit-down occurred just days after the collapse of Bear Stearns and the sale of its assets to JPMorgan Chase, in a deal brokered by the Federal Reserve Bank of New York.
While most of the discussion at this meeting covered the possibility that the country had already slipped into a recession and that inflation might rear its head, the topic of whether the nation’s banks were adequately capitalized did come up. That these institutions were inadequately capitalized was already obvious to some regulators, but that was not the view of Timothy F. Geithner, who was then the president of the New York Fed and vice chairman of the Fed’s Board of Governors.
“It is very hard to make the judgment now that the financial system as a whole or the banking system as a whole is undercapitalized,” Mr. Geithner said, adding that “some people are out there saying that.”
He continued: “Based on everything we know today, if you look at very pessimistic estimates of the scale of losses across the financial system, on average relative to capital, they do not justify that concern.”
To Mr. Geithner, the nattering naysayers raising alarms about the financial system’s soundness were a bigger problem than the one that they were trying to draw attention to. “There is nothing more dangerous in what we’re facing now,” he said, “than for people who are knowledgeable about this stuff to feed these broad concerns about our credibility and about the basic core strength of the financial system.”
By January 2009 we were in a full blown global financial crisis and the most serious economic downturn since the Great Depression. So naturally they nominated Geithner to be the Treasury Secretary.
I'm sure you'll recall that in his confirmation hearings the only real controversy was the fact that he had failed to pay some taxes a few years earlier:
[Senator Charles] Grassley said he recognized that many in Congress viewed Geithner as "possibly the only man for the job of healing the recession before us and a very fractured economy."
With leadership like that it's obviously pure random chance that we avoided a Great Depression.