Fed Transcripts: Why Was Congress in the Dark During the Crafting of Dodd-Frank?

Jan 13, 2012Matt Stoller

Records of the Fed's meetings at the height of the housing bubble provide more evidence that our central bankers need to be held accountable.

The latest release of the Federal Reserve's Open Market Committee transcripts is a doozy. Binyamin Appelbaum read through the transcripts and wrote a great article on what he found. The people on the FOMC straight up did not understand the economy, and that becomes very obvious when you parse their nonchalance through the pivotal year of 2006. That's true as far as it goes, but there's a political angle here as well.

My question is, why don't we have the transcript for 2007? Or 2008? Or beyond that? Why didn't Congress have the evidence that Bernanke was an incompetent central banker when he was up for reconfirmation in late 2009? Why didn't Congress know any of what was revealed yesterday while it was tasked with rewriting the rules governing our entire financial architecture?!? It might have been useful to know that the Fed was staffed by an inept, embarrassing group of fools fiddling over inflation while Rome was being set ablaze.

I wrote a piece on this back in May of 2011:

There’s an easy way, however, for the Federal Reserve to lose its aura of undemocratic secrecy. It could release transcripts of its Federal Open Market Committee meetings within one year — or be compelled to do so with a congressional subpoena.

These committee meetings are the real guts of U.S. economic policymaking. You can already get a summary of each meeting within three weeks. But the actual transcripts — the debates among Fed policymakers at those meetings — are released with a minimum lag time of five years.

Rep. Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform, had pledged last year to look into this issue. But he has not acted.

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So, we still do not know what top Fed officials were debating from 2006 through 2010 as the housing bubble ballooned and the banking system collapsed. Were Fed officials privately worrying about the housing market? Were they aware of leverage in the system? Did they understand the dangers of credit default swaps?

The democratically elected Congress should have known these things before attempting to fix the financial system. Several congressional postmortems on the crisis should have had access to these records. And as Congress debates Rep. Mike Pence’s bill to change the Fed’s mandate, it should have access to this information.

Why doesn't Congress issue a subpoena to get the information about FOMC meetings from 2007-2010, so that we know what the Fed is thinking? They do not deserve the presumption of competence anymore. Darryl Issa promised this during the transition to GOP congressional rule in 2010 but he has not followed through. Perhaps he should.

Many people did get what was happening -- 2006 was the year that the big banks began cutting warehouse lines of credit to mortgage originators, which would eventually topple the whole housing ponzi scheme. Dean Baker had been trying to sound the alarm about a housing bubble as early as 2003. Yves Smith started her site Naked Capitalism in 2006 and Josh Rosner began noticing what was going on that year; moreover, the dangers of leverage had been recognized as far back as the early 1990s by such economic luminaries as Jane D'Arista.

It's not just that the people on the Federal Reserve's Open Market Committee -- the real rulers of America -- are insultingly out of touch with reality. It's also that the public does not even get to see what they are doing and that Congress doesn't really want to know. This, more than anything else, is animating figures like Ron Paul, who accuses the Federal Reserve of foisting an unwanted monetary system on the American public.

The reality of our times is that the people in charge of powerful institutions are driven by nothing so much as a desire to be the maintainers of consensus. That is what the FOMC participants were. And if we don't fix this state of affairs and hold powerful people accountable for being incompetent and wrong at least some of the time, America is done for.

Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.

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