Fed’s transcripts from 2008 more revealing of what we still don’t know

Stored with great care in a security vault in Abilene, Kan., there is a now-fragile piece of paper with 65 penciled words on it — not counting those that have been crossed out, for this was obviously a draft.

The words were written by a man who had grown up in Abilene and gone on to become the general in command of the invasion force that would storm the beaches of Normandy, France on June 6, 1944. The paper now stored so securely was to be a message accepting blame in the event that the effort failed. It reads:

“Our landings in the Cherbourg-Havre area have failed to gain a satisfactory foothold and I have withdrawn the troops. My decision to attack at this time and place was based upon the best information available. The troops, the air and the Navy did all that Bravery and devotion to duty could do. If any blame or fault attaches to the attempt it is mine alone.”

It is a message never sent. The landings on Normandy’s beaches cost many lives but were ultimately successful. The Allies had a foothold in Europe and the Nazis’ cruel grip on the continent was coming to an end. General Dwight D. Eisenhower’s “In case of Failure” message wasn’t needed, but is an important part of our national archives in Abilene’s Dwight D. Eisenhower Presidential Library.

Needed or not, it was a model of clarity, directness, and to-the-point assumption of responsibility. It is in that respect an artifact of history that provides a sharp contrast to the present.

We live in a time when responsibility and blame are tossed around like near-weightless balloons at a toddler’s birthday party. Public apologies are everywhere, yet so filled with dissembling and redirection that they have lost all genuine meaning and now resemble the language, gestures and choreographed movements of some decadent royal court.

Last week the Federal Reserve released the transcripts of its meetings and conference calls in 2008 during the early stages of the financial crisis and subsequent economic slowdown and recession. They allow us to see what the disaster looked like at “headquarters” — the kind of information that the leaders had available and how they responded as the disaster unfolded.

What we see from the transcript records is a Federal Reserve and Treasury Department initially uncertain about how serious the financial storm really was. While the data on the financial markets were readily available, it wasn’t clear to all the leaders just how damaging the storm on Wall Street would be to the overall economy.

It is technically accurate, perhaps, but ultimately unfair to use the word “ignorance” to describe the Federal Reserve’s problem. The Fed members knew plenty about what was happening; the problem was to get some perspective on it, and that was difficult at the time because of the quality of the information they had.

It is one thing, for example, to recognize that the housing sector was foundering, a victim of its own greed. It is quite another thing to recognize early that the housing downturn was not simply another instance of its famous volatility. More importantly, few suspected that its underlying mortgage credit system was so corrupted with financial fakery that its collapse threatened to take our banking system down with it.

The analysis of the transcripts that has appeared in the news media thus far has been disappointingly shallow and quick to assign blame. Picking individuals as “winners” and “losers” based on the transcripts, as one news outlet did, reduces the painful reality of financial crisis to the level of a Tuesday evening sports highlights video.

The Fed used the information it had at the time, and injected liquidity on an unprecedented scale to offset the rot that had spread throughout the financial system. That was eventually enough to quell the panic and restore order to our markets.

It was not enough to restore the health of our overall economy, though, as we all know too well. The country had suffered a crisis of faith as well as finance, and its recovery would take time, something that monetary policy cannot control or create.

The details of 2008’s monetary policy decisions tell us less about the Federal Reserve Board than it does about how much we still don’t know about the U.S. economy and how it works; how much we still have to learn about economics.

The real failure at the Federal Reserve won’t be found in these recently released transcripts. It was in not recognizing that banks, aided and abetted by government agencies, were engaged in high risk activity on a large enough scale to wreck our economy. Apologies are not needed. Just don’t let it happen again.

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