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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Much has been made of David Brooks’s recent New York Times column, in which confesses to missing already the civility and humanity of Barack Obama, compared to who might take his place. In NewYorker.com, Jeffrey Frank reminds us how critical such attributes are to foreign policy. “It’s hard to imagine Kennedy so casually referring to the leader of Russia as a gangster or a thug. For that matter, it’s hard to imagine any president comparing the Russian leader to Hitler [as] Hillary Clinton did at a private fund-raiser. … Kennedy, who always worried that miscalculation could lead to war, paid close attention to the language of diplomacy.”
“We haven’t seen a true leftist since FDR, so many millions are coming out of the woodwork to vote for Bernie Sanders; he is the Occupy movement now come to life in the political arena.” So says Bill Maher in his Hollywood Reporter cover story (more a stream-of-consciousness riff than an essay, actually). Conservative states may never vote for a socialist in the general election, but “this stuff has never been on the table, and these voters have never been activated.” Maher saves most of his bile for Donald Trump and Sarah Palin, writing that by nominating Palin as vice president “John McCain is the one who opened the Book of the Dead and let the monsters out.” And Trump is picking up where Palin left off.