Just released transcripts from 2008 show that the U. S. Federal Reserve misjudged the extent of the looming financial crisis that was unfolding, as we feared. In 2007, we began to express serious reservations about whether the Fed knew what it was doing. That theme continued on these pages in a series of postings under the Fed category over the ensuing years of the worst recession since the Great Depression. We offered a glimpse of what was ahead in November of 2008.
There will be many casualties before the full extent of the great unfolding 21st century credit debacle is over. There have already been a few CEOs who are taking a very well paid early retirement. More will follow. Some companies will not survive. The stock market will continue to experience unsettling jolts, like its more than 600 point drop this week. But, unfortunately, it will be the ordinary consumer —not the central bankers or the treasury luminaries or the credit agency raters or the boardroom directors who permitted this fiasco and were blind to its early signs— who will suffer most from the turmoil and setbacks that lie ahead.
The transcripts also show that Timothy F. Geithner, then President of the New York Federal Reserve, was also viewing the world through rose-coloured glasses, rejecting any suggestion that the big banks, whose CEOs comprised his board of directors, were under-capitalized. We broke new ground in 2007 and 2008 in our analysis of the governance failures and weaknesses of the New York Fed. We were the first to bring these issues to public attention, and continue to view those failures as a major, and still much underreported, factor in the financial meltdown that shook the world.
Years later, these continue to be among the most popular postings at Finlay ON Governance. This coda, of sorts, on the great economic crisis of the 21st century prompts us to make some further observations about its cause and their continuing effects.