Lehman Brothers, the giant investment firm, declared bankruptcy in September 2008. The next day, the Federal Reserve’s policy-setting committee convened for a regularly scheduled meeting as markets wondered just how far Lehman’s collapse would ripple through the financial system.
Ben Bernanke, then Fed chairman, said he was “grappling” with the necessity of making ad hoc decisions about “moral hazard,” according to transcripts from the 2008 meetings, released Friday after a five-year lag.
“In each event, in each instance, even though there is this sort of unavoidable ad hoc character to it, we are trying to make a judgment about the costs — from a fiscal perspective, from a moral-hazard perspective, and so on — of taking action versus the real possibility in some cases that you might have very severe consequences for the financial system and, therefore, for the economy of not taking action,” Bernanke said at the Federal Open Market Committee’s Sept. 16 meeting.
“I am decidedly confused and very muddled about this,” he said.
Although we know now that the economy was going to continue its downward spiral, most FOMC members — including then-San Francisco Fed President and now-Fed Chair Janet Yellen — thought it was too soon to provide monetary accommodation in the form of further interest-rate cuts at that September meeting.
“My policy preference is to maintain the federal-funds rate target at the current level and to wait for some time to assess the impact of the Lehman bankruptcy filing, if any, on the national economy,” said St. Louis Fed President James Bullard. “I think we should be seen as making well-calculated moves with the funds rate, and the current uncertainty is so large that I don’t feel as though we have enough information to make such calculations today,” said Charles Evans, the Chicago Fed president.
Like Bullard and Evans, Eric Rosengren, president of the Boston Fed, wasn’t a voting member at that September meeting. But he had a different take. “This is already a historic week, and the week has just begun”¦. The degree of financial distress has risen markedly,” Rosengren said. “Given that many borrowers will face higher interest rates as a result of financial problems, we can help offset this additional drag by reducing the federal-funds rate.”
The FOMC’s voting members unanimously stood pat at that September meeting’s conclusion, leaving the federal-funds rate at 2 percent. As the economy continued to unravel over the coming months, the Fed opted to act, cutting the rate to near zero when it met in December and ushering in a new era of monetary policy as the Fed turned to unconventional tools — like the three bond-buying programs it has since launched — to boost the economy.
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Despite trailing Hillary Clinton by a significant margin, Bernie Sanders wasn't going the way of Ted Cruz tonight. The Vermont senator upset Clinton in Indiana, with MSNBC calling the race at 9pm. Sanders appears poised to win by a five- or six-point spread.
And just like that, it's over. Ted Cruz will suspend his presidential campaign after losing badly to Donald Trump in Indiana tonight. "While Cruz had always hedged when asked whether he would quit if he lost Indiana; his campaign had laid a huge bet on the state." John Kasich's campaign has pledged to carry on. “From the beginning, I’ve said that I would continue on as long as there was a viable path to victory,” said Cruz. “Tonight, I’m sorry to say it appears that path has been foreclosed."
The Republican establishment's last remaining hope—a contested convention this summer—may have just ended in Indiana, as Donald Trump won a decisive victory over Ted Cruz. Nothing Cruz seemed to have in his corner seemed to help—not a presumptive VP pick in Carly Fiorina, not a midwestern state where he's done well in the past, and not the state's legions of conservatives. Though Trump "won't secure the 1,237 delegates he needs to formally claim the nomination until June, his Indiana triumph makes it almost impossible to stop him. Following his decisive wins in New York and other East Coast states, the Indiana victory could put Trump within 200 delegates of the magic number he needs to clinch the nomination." Cruz, meanwhile, "now faces the agonizing choice of whether to remain in the race, with his attempt to force the party into a contested convention in tatters, or to bow out and cede the party nomination to his political nemesis." The Associated Press, which called the race at 7pm, predicts Trump will win at least 45 delegates.