What the Fed Was Thinking During the 2009 Crisis
Waiting for reinforcements to arrive.
The complete transcripts of the Federal Reserve's 2009 policy deliberations, released Wednesday, may be a treat for historians of the Great Recession. It was an eventful year, after all, as the economy hit bottom and the government was still scrambling to rescue U.S. banks. But why did we have to wait five years for them to come out?
The transcripts offer a complete record of who said what, and when -- and so provide far more detail than the minutes of monetary policy meetings, which are released just three weeks after the event. In January 2009, for instance, when Bank of America needed new emergency support, then-Fed Chairman Ben Bernanke said he was "very uncomfortable" with how deeply the central bank had been drawn into bailouts and unhappy with Congress's slowness in providing economic stimulus: "Until the reinforcements arrive, I don’t think we have much choice but to try to work with other parts of the government to prevent a financial meltdown."
On Feb. 7, two days before new Treasury Secretary Tim Geithner gave a poorly received presentation of the government's plans to stabilize banks, Bernanke sought to explain why Geithner's plan lacked information on cost: "It’s like selling a car: Only when the customer is sold on the leather seats do you actually reveal the price."
In March, as the Fed was preparing to stress-test banks, then-Fed Governor Janet Yellen argued for moving "much more aggressively" to force banks to recognize losses, raise capital and even jettison some operations. "We will not get recovery until we have a strong, healthy banking system," she said, noting later that the economy was a "disaster area."
Such details -- as well as those from the darkest days of the financial crisis in 2008 -- might have been more useful if they'd come out sooner. Congress may have benefited by reading them, for example, when it was crafting the Dodd-Frank financial reform legislation. Lawmakers would have had greater insight into how concerns about the banking system complicated the Fed's efforts to revive the economy, and might thus have done more to ensure banks' resilience.
Why is the wait so long? Fed officials worry that if they know their conversations will soon be published, they will be hesitant to speak candidly. They may be afraid of political repercussions or the possibility that they will reveal confidential information. And that would chill much-needed debate and possibly compromise the Fed's crucial independence. This argument has some merit, but it's hard to see why the lag in publishing has to be as long as five years.
Meanwhile, the withholding of useful information feeds perceptions that the Fed is too secret or insufficiently accountable. It causes lawmakers such as Kentucky Senator Rand Paul to try to "audit" the already thoroughly audited Fed, or Texas Representative Jeb Hensarling to replace the Fed's policy-making committee with a mathematical rule.
The Fed should be as transparent as prudence allows. Releasing transcripts more quickly -- while events are still fresh, so we can learn from experience -- would be an easy step in the right direction.
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