The Fed's Crisis-Era Foxhole: In Quotes
February 21, 2014 2:16 PM
The Federal Reserve on Friday released transcripts from more than a dozen Federal Open Market Committee meetings and conference calls held during 2008, at the height of the financial crisis. The hundreds of pages of recorded history show how policymakers struggled with their decision to allow the investment bank Lehman Brothers to collapse and offer intimations of the turmoil yet to come from Fannie Mae and Freddie Mac.
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"Frankly, I am decidedly confused and very muddled about this. I think it is very difficult to make strong, bright lines given that we don't have a structure that has been well communicated and well established for how to deal with these conditions."
Former Fed Chairman Ben Bernanke
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"We have come to a time in our history when we have institutions that clearly ought to be and may in fact be too big to fail."
Thomas Hoenig, former Kansas City Fed President and now vice chair of the Federal Deposit Insurance Corp.
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"We had no choice [but to allow Lehman Bros. to collapse]. We did what we had to do, but I hope we will find a way to not get into this position [again]."
Eric Rosengren, Boston Fed President
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"In uncertain circumstances like these, I think it would be unwise to react too hastily to a fluid situation. Any immediate effects may not be the ones that are intended, and further down the line - that is, once more data have accumulated - a hasty action may leave the Committee out of position relative to the incoming data. By denying funding to Lehman suitors, the Fed has begun to reestablish the idea that markets should not expect help at each difficult juncture."
James Bullard, President, St. Louis Fed
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"My chief concern is that lending is going to be constrained by lenders needing to maintain sound capital ratios in the face of asset writedowns and loan chargeoffs."
Cleveland Fed President Sandra Pianalto
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"I believe the biggest policy risk we're going to be facing in the months ahead is the risk of waiting too long. In past episodes of economic or financial weakness, we're been unwilling at times to raise the funds rate until we were almost completely certain that economic recovery would be sustained. I do not think that we can afford that luxury at the present time."
Richmond Fed President Jeffrey Lacker
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"On financial institutions, I think the body blow that the financial markets and the real economy have taken because of the turmoil at the GSEs [the government-sponsored entities Fannie Mae and Freddie Mac] is not complete. It is easy for those of us in Washington to forget that bill signings don't always solve problems. I'd say, if the last thing that happens on the GSEs is that the bill was signed two weeks ago and action isn't taken in the coming weeks and months, then I would be surprised if we could get through this period without more GSE turmoil finding its way onto the front pages."
Former Fed Gov. Kevin Warsh
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"We have had some failures, and we are concerned about other failures. So we have a very different environment. In that situation, if a shoe drops-and we have had big shoes dropping; we had Bear Stearns, we had the GSEs, and we had smaller cases like Indy Mac - and if financial systems are in a very weakened state, really bad things could happen. I think that there really is a serious danger here."
Former Fed Gov. Frederic Mishkin
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