We have discussed Dallas Fed's Richard Fisher's money-where-his-mouth-is perspective on the world before and the (sadly) non-voting member is among UBS' Art Cashin's most respected and candid of the FOMC. A glance through the transcripts that Art highlights below should both make readers sick at the constant pollyanna-ish nature of Fisher's comrades and perhaps more confident that his insights will be listened to more astutely 'the next time' as he noted at the time "No amount of rewriting of history will exonerate us". Once again, after reading these transcripts, do we really believe that central bankers are omnipotent? or incompetent?
Via Art Cashin, UBS:
More On Fed Transcripts – Yesterday, we mentioned that the newly released FOMC transcripts from 2007 only served to strengthen our respect for the thinking and candid commentary of Dallas Fed President, Richard Fisher.
Back in late Spring of 2007 (May 9th), while many on the FOMC felt housing problems might be contained, Fisher worried allowed (much lifted from WSJ 1/18/13):
May 9, Dallas Fed President Richard Fisher: "On the housing front, I have been bearish--more bearish than anybody at this table...I am more concerned than I was before. We can go through the numbers, but I think it is best expressed by the CEO of one of the five big builders, who said that in March he was arguing internally with his board that the headlines were worse than reality and now reality is worse than the headlines."
Apparently, Chairman Bernanke did not wish to rock the boat.
May 9, Mr. Bernanke: "I just want to make the observation that for almost a year now we have taken a very steady approach...During the period, the markets and the general view have gone up and gone down, and we have maintained a pretty even keel. That increases confidence in the institution and, unless we have a reason to change our view, we should continue to stay on a steady path."
At the late June (27/28) meeting, as things began to worsen, they reviewed some of the implications of the problems at Bear Stearns. Secretary Geithner, then NY Fed President led:
June 27-28, Mr. Geithner on problems emerging at a Bear Stearns hedge fund (the bank would collapse in 2008): "Direct exposure of the counterparties to Bear Stearns is very, very small compared with other things."
Mr. Fisher apparently responded:
June 27-28, Mr. Fisher: "I was once a hedge-fund manager--I know all the tricks that are played there, including, by the way, the valuation of underlying securities--in a day when the business was less sophisticated than it is now. I don't feel I understand this issue...I don't think the issue is contained. I do think there is enormous risk."
By the next meeting (August 7th), Mr. Fisher's concern and exasperation were becoming very evident as seen in this exchange. It starts with current NY Fed President (then chief of the open market desk) Dudley:
Aug. 7, Mr. Dudley: "We've done quite a bit of work trying to identify some of the funding questions surrounding Bear Stearns, Countrywide, and some of the commercial-paper programs. There is some strain, but so far it looks as though nothing is really imminent in those areas. Now, could that change quickly? Absolutely."
Aug. 7, Mr. Fisher: "No amount of rewriting of history will exonerate us if we are not prepared for the more-dire scenarios that were presented by the staff. I would ask that we do some scenario preparation in terms of, should we encounter increased financial-market turbulence, what actions we might take to deal with it."
Aug. 7, Mr. Bernanke: "I think the odds are that the market will stabilize. Most credits are pretty strong except for parts of the mortgage market."
The transcripts are absolutely fascinating and tell you more about the Fed than a decade of Congressional testimony. Try to get the whole set.