Fed Slow to Grasp Crisis in 2007 as Yellen Sounded Alarm

[xchrom]

http://www.bloomberg.com/news/2013-01-18/most-fed-officials-saw-economy-weathering-subprime-crisis.html


A man rides a horse by an abandoned home in Las Vegas.

Federal Reserve officials in August 2007 saw the beginnings of the crisis in subprime mortgages and concluded that the U.S. economy would be able to withstand it, even as some Fed members warned that it could trigger a downturn, transcripts from their 2007 meetings show.

“Well-capitalized banks and opportunistic investors will come in and fill the gap, restoring credit flows to nonfinancial businesses and to the vast majority of households that can service their debts,” Donald Kohn, then vice chairman of the board, said in Aug. 2007 according to transcripts of the Federal Open Market Committee meetings released today in Washington.

The transcripts show the committee’s slow grasp of the enormity of contagion that was to spread throughout global markets as a result of billions of dollars in low-quality housing assets that had been securitized into bonds and sold to banks and investors worldwide. Several FOMC participants such as then-San Francisco Fed President Janet Yellen sounded alarms in the first half of 2007. Still, the FOMC focused on the economy’s performance and showed reluctance to alter policy until August.

“The odds are that the market will stabilize,” Bernanke told the committee in Aug. 2007, according to the transcripts from that year. “This restrictive effect could come in various magnitudes. It could be moderate, or it could be more severe, and we are just going to have to monitor how it adjusts over time.”

[2pooped2pop]

1. Kind of felt more like they were hoping things would hold

up til the next president got in to blame him, to me. I mean we, on DU knew the economy was a house of cards about to be blown over for at least 2 years before the fall. They knew. They just wanted to continue to rape it unfettered and blame the next guy.

[quaker bill]

2. They were not looking in the right places

Looking back now through aerial photos, permits and property appraiser construction records, new construction was grinding to a halt in late 2006. By early 2007 there were plenty of signs of a rapidly increasing crisis if they had known where to look. The larger and more stable players in the housing business were unloading their inventory of undeveloped lots to small, fly on the seat of our pants operations. These small players were highly leveraged and would collapse at the first downturn and did in spectacular ways.

It would have been fairly easy to see permits and financing getting pulled, but no construction starting. (Most local gov'ts require filing a "notice of commencement" when they start turning earth, to alert the building inspectors) I can see it now and with a bit of analysis could pin down the precise month where it went south. I can tell you right now from a more preliminary review that it was well before this meeting of the FOMC.