Some Federal Reserve (Gallows) Humor

We just found out what the Fed said.

In 1800 pages of transcripts from 11 policy-making FOMC (Federal Open Market Committee) meetings and conference calls during 2009, the Fed debated how to manage the money and credit supply of a very troubled economy. Their deliberations included 303 moments of laughter (which we know because “laughter” was parenthetically noted after each one). Some of those lighter moments were reminders of the state of the economy only six years ago,

The Economy

Janet Yellen (current Fed Chair):

• “Things are now so bad that I actually open the Greenbook with greater trepidation than my own 401K.” (The Greenbook is composed of Fed briefing documents.)
• “Another disturbing sign of how tough things are is that people appear to be breaking into their piggy banks to make ends meet. The Cash Product Office reports huge increases in the amount of coins being brought into our inventory.”

Job Losses in 2009

Only during the Great Depression had the economy lost more jobs than during 2009.

Ben Bernanke and a staff member:

• “Let me turn now to the economic situation. Boy, I think it has been a while since we were three and a half hours into the meeting before we got to the staff forecast.”
• “The GDP got a little smaller than it was at the start of the meeting.”

The GDP in 2009:

With the recession extending from December 2007 to June 2009, the FOMC had to cope with every U.S. region contracting.

Housing Markets

Elizabeth Duke (Fed Board member):

“Before I move to asset purchases, I’d like to start with the story of an elderly wealthy gentleman who had taken a young bride and begun to spend money like crazy. His friends got very concerned that he was going to go through his entire fortune, and they elected one of their number to go and talk to him about it. He said, ‘Sam, We’re really concerned. We want to make sure that you know you can’t buy love.’ Sam said: ‘I know you can’t buy love, but if you spend enough money you can buy something that looks so close you can hardly tell the difference.'”

“So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices…”

Housing in 2009:

Financial Markets

Ben Bernanke:

Nominating Ben Bernanke as the Chair of the FOMC (which the Fed Chair always leads), Donald Kohn (Fed Vice-Chair 2006-2010) wonders if the appointment could be retribution:

• “Mr. Chairman, it is a pleasure and an honor to recommend Ben Bernanke to be chairman of this committee. I am not sure what sins you committed in an earlier life, but I sure hope you had fun.”

Wall Street in 2009:

You can see the plunge in the Dow as the 2009 FOMC meetings unfolded:

More specifically, do look at price of Lehman Brothers stock (orange line) at the end of 2008.

Our Bottom Line: Interest Rates

When economic activity slows, the Fed digs into its tool box and uses a lower discount rate and securities purchases to increase bank loans.

As in the above graphs, do look below at 2009.

You can see why the press called the Fed’s lighter moments “gallows humor.”