14-Jan-2012 - Greenspan image tarnished by newly released documents

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Some six years later, Greenspan’s record — sterling when he left the central bank after 18 years — looks much more mixed. Many economists and analysts say a range of Fed policies contributed to the financial crisis and resulting recession. These included keeping interest rates low for an extended period, failing to take action to stem the bubble in housing prices and inadequate oversight of financial firms.The Thursday release of transcripts of Fed meetings in 2006 shows that top leaders of the Fed — several of whom continue to hold key positions today — had a limited awareness of the gravity of the threat that the weakness in the housing market posed to the rest of the economy. And they had what turned out to be an excessive optimism about how well things would turn out.In his first meeting as Fed chairman, Ben S. Bernanke noted that the housing market was causing some uncertainty, but that he “was reassured to hear that most participants custom nhl jerseys think that a decline in housing will be cushioned by strong fundamentals in terms of income, jobs, and continuing low interest rates.”He agreed with that view, saying “strong fundamentals support a relatively soft landing in housing.” He pointed out that residential investment represents just 6 percent of the economy. “I think it would take a very strong decline in the housing market to substantially derail the strong momentum for growth that we are currently seeing in the economy.”Bernanke made light of the questions surrounding Iceland, which was causing some early waves in financial markets after borrowing heavily. After a Fed economist gave a presentation that noted those trembles, Bernanke said, “We’d like a full report on the Icelandic,” before he was interrupted by laughter.Later, the explosion of Iceland’s financial markets led to that country’s banks defaulting on their debts, feeding the financial crisis. The year 2006 started out with adulation all around for Greenspan. Roger Ferguson, the Fed vice chair and current head of TIAA-CREF, called him a “monetary policy Yoda.” Janet Yellen, then president of the Federal Reserve Bank of San Francisco and now vice chair of the Fed, told Greenspan “that the cheap NFL jerseys situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.”Throughout the year, the Fed was slow to realize what was happening in the housing market and the threats it posed, as borrowers who took on risky subprime loans defaulted, causing foreclosures. A Fed economist reported in a 2006 meeting that “we have not seen — and don’t expect — a broad deterioration in mortgage credit quality.” That turned out to be incorrect.At the end of the year, there was growing awareness that problems in housing, with prices declining, could lead to some slower growth in the overall economy. But officials were still somewhat optimistic.“The current weakness in the economy still seems principally to stem from the direct effects of the slowdown in housing on construction activity,” Geithner said in December 2006. “As things now stand, the softer-than-expected recent numbers don’t argue, in our view, for a substantial reassessment of the risks in the outlook.”Related stories: For those hurting most, Fed's economic remedies have been limited Fed: Final weeks of 2011 were best of year jerseys cheap for U.S. economy A ‘serious conflict’ between rich and poor

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