What was the Fed doing in ’06 as the economy overheated? Laughing their asses off
End the Fed?
Ron Paul’s supporters might have a little more complaining to do after a new study that examines behavioral patterns at Fed meetings between 2001 and 2006.
On Friday the New York Times reported on a study originally published earlier this month by the Daily Stag Hunt that analyzed transcripts of the Fed’s Open Market Committee meetings from 2001 to 2006, a five-year run that we may look back on decades from now as one of the most overheated economic climates in recent memory.
As ’06 crested with a tidal wave of subprime mortgages and easy credit, engulfing the country in a hysterical delusion of false wealth, the Fed meetings became punctuated more and more by hysterical laughter.
From the report: “The number of recorded laughs actually increased in frequency from 2000 to 2006. In 2001, the FOMC erupted into laughter 16.5 times per meeting on average. In 2003, it was over 19. In 2005, 27. And then in 2006, the FOMC burst into laughter nearly 44 times per meeting!”
Fed Chairman Alan Greenspan seemed to lead the laugh track, whipping the meetings into more frequent fits of laughter as the economy grew more and more overheated. At the apotheosis of the riot that had become the FOCM meetings Tim Geithner, then vice-Chairman of the Fed, said at Greenspan’s last meeting as Chairman:
I’d like the record to show that I think you’re pretty terrific, too. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.[Laughter]
He then added, “The economy looks pretty good to us, perhaps a bit better than it did at the last meeting.”
While there’s other evidence to indicate Fed officials as well as financial experts knew that that the housing sector specifically was in a bubble destined to burst, the laugh track between 2001 and 2006 seems to indicate that Fed officials got swept up in the same hysteria as rank-and-file consumers who believed anyone could get rich borrowing money and flipping assets, be they houses or otherwise.
Below, check out a chart from The Daily Stag Hunt depicting laughter at Fed meetings through the bubble. What would perhaps be more interesting to see, however, is the laugh track from 2007 to 2010, when the shit really hit the fan. We know that the total wealth of Congresspeople increased 25% during that time when American wealth at large was decimated. Policymakers are always insulated from the worst damage—it’d be interesting to see whether all the havoc wreaked in the economy silenced the guffaws, or whether the Fed boys kept on laughing their way through the crisis.