Jokes, Worries and Great Expectations: Fed Releases Notes From 2008 Financial Crisis Meetings

After nearly six years of waiting, the U.S. Federal Reserve on Friday released notes from several meetings held in 2008 at the height of the global financial meltdown.

Ben Bernanke walks out of his office for the last time as Federal Reserve chairman, Jan. 31, 2014 in Washington, D.C. (Getty Images)

As the notes from the Federal Open Market Committee reveal, a host of issues were at play during those meetings. There were fears that the crisis would get worse, confusion over how to approach the issue and jokes about how other countries would handle the U.S.’ approach to the meltdown.

“We’re crossing certain lines. We’re doing things we haven’t done before,” then-Chairman Ben Bernanke said during an emergency meeting held March 10, 2008. “On the other hand, this financial crisis is now in its eighth month, and the economic outlook has worsened quite significantly.”

The Fed released notes from 14 meetings, eight regularly scheduled appointments and six emergency sessions.

During a January conference call, Bernanke threw his support behind deep cuts in interest rates, arguing that investors were growing concerned that “the United States is in for a deep and protracted recession.”

Later, during a March 18 meeting, Fed officials agreed that the U.S. economy was falling hard and that recession was likely around the corner. However, Fed chiefs hit a roadblock when they couldn’t come to an agreement on what kind of threat rising inflation could pose to the economy

Fed chiefs also disagreed on how they would inform the public of the matter.

Fed officials involved in the following transcript include Bernanke, Donald Kohn, Frederic Mishkin, Charles Evans of the Chicago Fed, Brian Madigan, William Dudley, Kevin Warsh, Timothy Geithner of the New York Fed, Dennis Lockhart of the Atlanta Fed and Randall Kroszner.

MR. KOHN. On inflation expectations, because they haven’t risen very much, I agree with President Geithner. I like the fact that we tell people we are aware, but we could say “have edged higher” or something like that instead of “risen.”

MR. MISHKIN. We could use my “smidgen” word, but “edged higher” is better.

MR. KOHN. Went up a smidge.

CHAIRMAN BERNANKE. All right. President Evans.

MR. EVANS. “Edged higher” is an unusual phrase.

MR. MISHKIN. “Have risen somewhat”?

MR. MADIGAN. I think an issue with “edged higher” is that it really does sound as though you have some very specific measures in mind.

CHAIRMAN BERNANKE. Brian, do you have a thought on “risen” versus “risen
somewhat” versus taking it out?

MR. MADIGAN. I think if you take it out that very much raises the question of what to do with that language in red about the factors that would push inflation down. It would be tough to drop the inflation expectations thought and not have inflation expectations mentioned anywhere in the paragraph. There would just be vacant space where you had, at least in previous minutes, referred to it.

CHAIRMAN BERNANKE. Anyone else? Bill.

MR. DUDLEY. Adding just the word “slightly”—“risen slightly”—gets to your point.

MR. MISHKIN. “Slightly” or “somewhat” risen.

MR. WARSH. Brian, does “somewhat” mitigate it a little, or does that highlight it?

MR. MADIGAN. I’m not sure. I mean, in my mind it mitigates it.


MR. KROSZNER. Is “slightly” better than “somewhat”?

MR. KOHN. “Somewhat” is bigger than “slightly.”

MR. EVANS. That is 50 versus 25 in the old days.

MR. LOCKHART. Mr. Chairman, if I understand the discussion about this, when you
say “some indicators have risen somewhat,” you are getting into territory that seems sort of mealy-mouthed.


MR. KOHN. “Risen a little”?

MR. KROSZNER. What is wrong with “slightly”?


This is what is commonly referred to as “Fed speak.”

The notes also reveal that Fed officials disagreed on the whether or not the U.S. government should come to the rescue of Lehman Brothers.

Richmond Fed president Jeffrey Lacker argued that the firm’s collapse would probably be the best course of action.

“What we did with Lehman I obviously think is good,” he said. “It has had an effect on market participants’ assessment of the likelihood of other firms getting support, and I think you would have to attribute at least some of changes in equity prices to that.”

Sure, the stock market might see a small hit, he said, but there was a “silver lining” to the collapse.

“I don’t want to be sanguine about it, but the silver lining to all the disruption that’s ahead of us is that it will enhance the credibility of any commitment that we make in the future to be willing to let an institution fail and to risk such disruption again,” he said.

Kansas City Fed chief Thomas M. Hoenig agreed that saving Lehman would set a dangerous precedent.

“I think what we did with Lehman was the right thing because we did have a market beginning to play the Treasury and us, “Hoenig said, “and that has some pretty negative consequences as well, which we are now coming to grips with.”

Lehman was allowed to collapse.

The meetings were also peppered with brief moments of banker humor.

“Like everyone else, I am very concerned about the developments in the financial markets. I’ve been supportive of the steps we’ve taken to enhance liquidity in the markets through the TAF, the TSLF, the PDCF, or whatever,” Charles Plosser said at a March 18 meeting.

“AEIOU,” Bernanke chimed in.

“Don’t say IOU,” former Secretary of the Treasury Tim Geithner joked.

And then there was this moment from a September 16, 2008, meeting involving Dallas Fed Chief Richard Fisher, David Kohn, a member of the Board of Governors of the Federal Reserve, Bernanke and then-director of the Division of International Finance Nathan Sheets:

Fisher: Could you interpret for us the Bank of China’s cut in the bank lending rate

MR. SHEETS. Yes. Yesterday the PBOC cut its main policy rate 27 basis points. I guess they felt that 26 would not have been enough and 28 would have been too much. [Laughter] And 27 was just the right number. I’d say a couple of thoughts were there. One important point is that inflation in China has decelerated significantly. In the spring they were looking at twelve-month inflation rates of around 8.3 percent. The latest reading for August was 4.9 percent. So it’s clearly on a decelerating trajectory. That has been driven by a marked decline in food prices. Earlier this year, food prices were moving up at over a 20 percent rate, and now it is about 10 percent. So the deceleration in prices; some concerns about where activity is going, particularly in the aftermath of the Olympics; and signs of slowing external demand have given them the scope they need to cut policy rates. Besides the cut in monetary policy, we’re also hearing reports that the authorities are poised to implement fiscal stimulus if that’s necessary.

MR. FISHER. Thank you.

CHAIRMAN BERNANKE. Three is a lucky number in China. Don was going to tell you that 3 cubed is 27. [Laughter].

MR. KOHN. He was also going to wonder, Mr. Chairman, whether we needed to harness the mystical powers. [Laughter]

CHAIRMAN BERNANKE. I think we have good feng shui here.

MR. SHEETS. The science of monetary policy.

You can read the notes here:

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