TOPICS > Economy

Transcripts reveal Fed reactions during 2008 economic crisis

February 23, 2014 at 6:36 PM EDT
Federal Reserve Board transcripts from 2008 released on Friday give a behind-the-scenes look at how the nation’s central bankers reacted to the global financial meltdown. Hari Sreenivasan speaks with the Wall Street Journal’s Jon Hilsenrath about what new insight these documents give us about how the Fed handled the crisis.

HARI SREENIVASAN: In the past few days we’ve gotten new insights into how the nation’s central bankers reacted to the global economic meltdown of 2008. This with the release of the Federal Reserve Board’s transcripts at that time. For more about all this is Jon Hilsenrath of the Wall Street Journal. He joins us from Washington. So take us back, if we had amnesia 2008 what’s the setting where all these conversations are taking place?

JON HILSENRATH: The setting is it’s a moment of crisis and a period where Fed officials are constantly playing catch up, constantly trying to keep up with events that are spiraling out of control. There are moments when they feel like they’re ahead of the curve, but there are many moments when they are clearly behind the curve.

HARI SREENIVASAN: So I mean hindsight’s 20/20, but let’s start looking at different characters here. After the collapse of Lehman Brothers, what’s Ben Bernanke thinking?

JON HILSENRATH: Right after the collapse of Lehman Brothers it’s kind of his last moment of hopefulness that maybe they can escape this thing without a disaster. There’s a meeting actually two days after that Sunday, that fateful Sunday night when the government decided to let Lehman go, and Bernanke actually says in this meeting that ‘you know maybe monetary policy, the level of interest rates, is in the right place,’ they had kept them at 2 percent. Within a matter of days everything changes; they’re in the process of bailing out AIG. 36 hours later Ben Bernanke and Frank Paulson go to Congress and they say the government has to step up and bail out the whole banking system and within a matter of weeks he’s moving to slash interest rates. And you know Bernanke, that September meeting was a really great example of him playing catch up and not immediately recognizing the gravity of events that were in front of him.

HARI SREENIVASAN: Okay, how about Tim Geithner, he later goes on to be Treasury Secretary, what were his positions at the time?

JON HILSENRATH: You know Tim Geithner is a very interesting character here. He spends a lot of time in these meetings sparring and jousting with the Fed’s policy hawks. Officials from regional Federal Reserve Banks who are more worried about inflation than with the financial system stability. and Geithner spends a lot of time jousting with them. Frankly, there’s some moments here where it looks like he’s behind the curve. There’s a January 2008 meeting where Geithner gives his assessment of the financial system and he says it looks like the process of healing has already started. He couldn’t have been more wrong in that case.

HARI SREENIVASAN: Alright let’s talk also about Janet Yellen, who’s Fed chairman now. What was her behavior then and what can we glean from that going forward and how she might behave?

JON HILSENRATH: You know, one of the things that got Yellen this job was a sense that she had very good judgement, that in 2007 when we looked at earlier transcripts she was one of the first people to say ‘hey we have some real problems in this housing market.’ We know from their decision since 2008 she’s pushed very hard to keep interest rates low and hasn’t been too worried about inflation. These 2008 transcripts I think confirm the sense that the lady has pretty good judgement. She was usually one of the people in the room saying that she was concerned that the financial system was in grave danger.

HARI SREENIVASAN: Alright, Jon Hilsenrath from the Wall Street Journal. Thanks so much.

JON HILSENRATH: Thanks a lot.