Federal Reserve Laughter Reveals Feelings of Inadequacy

Written By: The WealthCycles Staff

“The recent release of the Federal Reserve Board's transcripts of its deliberations back in 2007 shows that their economic prophecies were way off,” writes Hoover Institute Ph.D. economist Thomas Sowell. Not only that, the transcripts record the board members laughing, more and more frequently as crisis approached. Laugher is a sign of nervousness. We investigate.

“It turned out that financial disasters in the housing market were not ‘contained,’ but spread out to affect the whole American economy and economies overseas,” Sowell adds, wondering why anyone puts faith or power in the hand of Fed Chairman Ben Bernanke when it had been proven by experience in 2008 that he did not understand the manner in which the financial markets functioned. Instances of laughter increased from 16 on average before 2002, to an average 23 chortles per meeting by 2005, to an average 44 in 2006. Something was funny at the Federal Reserve Bank (Fed), and it turns out it was the stress associated with models behaving badly. Sowell points out one of Bernanke’s ponderings:

It is an interesting question why what looks like $100 billion or so of credit losses in the subprime market has been reflected in multiple trillions of dollars of losses in paper wealth.

Perhaps it is because institutions are interconnected by opaque agreements, thanks to new-age accounting “rules” and off-balance sheet trickery, that

Continue Reading →

To continue enjoying this premium content in its entirety,
please select a subscription plan below:

testiomials Not only did Bernanke fail to understand the risks of allowing financial institutions to hide the real state of their balance sheets from the market, he miscalculated how quickly the dangerous side effects of doing so would snowball.”

Related Content