The hullabaloo over the 2008 FOMC transcripts, released yesterday after a five year lag, stirs some new thoughts along with old memories.
My first FOMC year was 1991, before they had transcripts—or, more accurately, before we knew they had transcripts. Then, the big secret came out, probably sometime in 1993, and all hell broke loose. I guess the first lesson has to do with the difference between confidentiality and secrets, the difference depending on who is spinning the story. For a while it was Congressional oversight committees calling for investigations. As I recall, the whole thing died down when the Fed invited a few key Congressional staffers to come over and take a peek and their peeks never revealed a smoking gun of any sort. In any case, I’m sure those were more boring than the 2008 transcripts were, given that 2008 was more interesting times.
When I say before we knew they had transcripts, the “we” I’m referring to were probably all the members of the FOMC other than the Chairman, although I can’t be sure the Chairman didn’t confide in one or more of the Governors. Certainly, the presidents didn’t know. The way I’ve always visualized it is Paul Volcker revealing the big secret—I mean confidential information—to Alan Greenspan in hushed tones over a pre-transition breakfast. At the time, I wondered if, perhaps, the Vice Chairman of the FOMC—the president of the New York Fed—might have been clued in, but he assured me that wasn’t the case.
At the time, people had a hard time believing we didn’t know. Some were aware of the little microphones embedded in the FOMC table. Some participants—including me—thought those were for amplification purposes in a large room. Others may have assumed that tapes and temporary transcripts were made to facilitate the writing of the minutes, which were made public, and then destroyed. What no one, but one, knew was that the transcripts were retained. To be fair to the Chairman, I wondered back then what I would have done if I were called aside and given such information. There were no good options at that point.
Negotiations with key Congressional people led to the current arrangement of making them public, but only with a five year lag. I wondered at the time how much the discussions would be affected by the knowledge that your words would eventually be made public verbatim. The answer seems to be not at all, or, at least, not much. Five years in the future seemed like a very long time; five years ago seems much shorter. Having read many of the transcripts of my years—1991-2004—the review sounded remarkably like it felt at the time.
The 2007 transcripts released last year revealed that the members of the FOMC were human. They did not see the crisis coming despite the gathering storm. The 2008 batch—released yesterday—showed much the same. Despite all the long-tailed events taking place most did not realize that 2008 would later be declared a recession year by the business cycle dating committee of the National Bureau of Economic Research—December 2007 to June 2009. It took Lehman to convince all of them and that was even delayed. One voting member even dissented four times during that recession year over fear of inflation.
Well, inflation did rise in the middle of the year, and unemployment didn’t look so catastrophic very early in the game. It’s hard for most of us to look back with empathy because of our tendency to assume that what happened was the only thing that could have happened. We implicitly assume that the outcome was preordained and wonder why they couldn’t just see it.
The 2008 transcripts included eight regularly scheduled meetings and four special meetings. The main lesson I draw is that until they all become smarter, they probably need to meet more often. It pays to keep your forecasts refreshed.
(Not that anyone is counting, but I believe this is my 500th blog post since I began in 2007. I’m looking for sympathy.)