“In fairness, the (Federal Reserve) officials involved were making fast-paced decisions with incomplete information. They were caught in the fog of war, not able to take advantage of five years’ worth of hindsight. (Who among us did not say some things we wish we had not in 2009?)”, Benyamin Appelbaum, Fed in 2009, Sweating Details as Disaster Loomed, New York Times, March 5, 2015

“The Fed repeatedly overestimated the strength of the economy in the years before the financial crisis. Officials continued to understate the nation’s economic problems well into 2008. The 2009 transcripts show, however, that most officials were cleareyed about the weakness of the recovery.” Neil Irwin, In Eye of Economic Storm, the Fed Blinked, March 5, 2015

“Three points: 1) I remain proud of the actions I took in 2007/2008 in my attempts to save IndyMac during the financial crisis. To this day, I know I did everything I could and I don’t believe anyone could have done more, with the facts available at the time. I did it the right way; I always followed regulations, the law, and kept everyone (especially our shareholders, regulators, and board) informed. 2) It’s outrageous that the FDIC sued me and alleged I was a negligent banker (something they never proved and I denied in my settlement with them), because I alone did not foresee the financial crisis in mid-2007! (It’s been clear for some time that our top economic experts at the Federal Reserve didn’t foresee it either and were still coming to grips with what to do as late as 2009.) and 3) Read this blog and the postings I made in the last few days about fire-sales (and others at the FDIC tab). If anyone was negligent, it was the FDIC itself for fire-selling IndyMac Bank in late 2008/early 2009 into the teeth of the financial panic/crisis, when they did not have to do so. They could have borrowed on their line of credit with the U.S. Treasury, paid off all of IndyMac’s insured deposits, and held its assets, like the Federal Reserve and federal government did in so many other situations; until markets rationalized/recovered. I wonder given FDIC Chair Bair’s stated disrespect (read her book) of then Treasury Secretary Geithner, whether she couldn’t bring herself to admit that the FDIC needed to draw on this Treasury line to avoid fire-sales? In other words, could her personal animus towards the Treasury Secretary have dictated the FDIC’s “rapid fire-sale” strategy of banks (like IndyMac) they seized and as a result, cost the FDIC insurance fund tens of billions in unnecessary and avoidable losses?”, Mike Perry, former Chairman and CEO, IndyMac Bank

(A handful of relevant excerpts from these March 5, 2015 New York Times articles.):

“In early 2009, financial markets were still in disarray, and Fed officials worked closely with the incoming Obama administration on a successful plan to restore confidence though a series of measures, including theatrical “stress tests” of the largest banks.”

“At the Fed’s second meeting of the year, in March (2009), officials agreed to expand the program substantially. On top of the existing plan to buy $600 billion in mortgage bonds, the Fed said it would buy a further $1.05 trillion in mortgage bonds and Treasury securities. Fed officials arrived in a mood of profound concern….at the meeting, Mr. Bernanke made clear the overall picture was still grim, and other officials agreed.”

“Earlier installments of transcripts showed a committee of policy makers struggling to understand the grave peril facing the domestic economy. But by 2009 virtually the entire committee had a clear understand of the economic disaster that was underway. That clear understanding just did not always carry over to a sense of great urgency.”

“In isolation, these are all perfectly worthwhile subjects for Fed officials to be debating. But there is far less in the transcripts that suggest the kind of hair-on-fire urgency to do more to try to help the domestic economy in its darkest hour…..What would that sense of urgency look like?”

“(from the March 2009 meeting): ‘The economy is just a disaster area,’ said Janet L Yellen, now the chairwoman of the institution. ’The economic outlook is utterly dreadful, and we have said we stand ready to do absolutely everything that’s needed to support the economy. We have let some time pass without doing anything, and in light of the outlook I would want to do everything we can. She continued by endorsing the idea of the Fed’s expanding its quantitative easing program to buy Treasury bonds and mortgage-backed securities….”

Posted on March 5, 2015, in Postings. Bookmark the permalink. Leave a comment.

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