Monday, January 21, 2013

Caught in the Act: Bald-Faced Lying By a Federal Reserve Official

MSM is hailing FOMC meeting comments made in 2007 by Federal Reserve member Janet Yellen. At the time, she was president of the Federal Reserve Bank of San Francisco.  Currently she is vice-chairman of the Fed.

The just  released transcripts of 2007 Fed Open Market Committee meetings show that, early on, Yellen warned other Fed members in FOMC meetings about the developing crisis in the housing market.

This has resulted in calls for her to  be nominated to become the next Fed chairman, after Bernanke, who is expected to leave his post when his current term expires in February 2014. Annalyn Kurtz at CNN Money writes:
If Ben Bernanke doesn't stay for another term, please nominate this woman for first chairwoman of the Federal Reserve.

One thing was blatantly clear when the Fed released its 2007 transcripts Friday: The central bankers didn't see the financial crisis coming until it hit them on the head.

But among them, the quickest to stress the severity of the housing downturn was Janet Yellen. Then president of the Federal Reserve Bank of San Francisco.
What did Yellen say during 2007 FOMC meetings? Kurtz reports (gray shaded areas):

 Yellen started sounding the alarm bells in May 2007.
"Much of the first-quarter weakness, of course, was due to housing, and I really don't see that sector starting to turn around at this point," she said.
 A month later, she again cautioned about the housing market.
"In terms of risks to the outlook for growth, I still feel the presence of a 600-pound gorilla in the room, and that is the housing sector. The risk for further significant deterioration in the housing market, with house prices falling and mortgage delinquencies rising further, causes me appreciable angst."

This is all quite interesting, but what is more interesting is what Yellen was telling the public during the same period.
As she was expressing concern about a "600-pound gorilla in the room," in the private FOMC meetings, just seven days later on July 5, 2007  in a speech delivered to the First Annual Conference of the Risk Management Institute Singapore via video-conference, she said:

The bottom line for housing is that it has had a significant depressing effect on real GDP growth over the past year. While I wouldn't want to bet on a sizable upswing, I also wouldn't be surprised to see it begin to stabilize late this year or next. Furthermore, if and when it does stabilize, it could contribute to a pickup in overall growth in the future, as the negative force of its contraction turns neutral.
 On July 12, 2007, in a speech to a Community Leaders Luncheon in Anchorage, Alaska, she said:

As many of you probably know, the Federal Open Market Committee last met on June 27 and 28 and voted to hold the federal funds rate, our main policy tool, unchanged at 5¼ percent. To most observers of the Fed, the decision probably had a familiar ring to it, because the funds rate has been kept at that level for the last twelve months. Indeed, my views concerning the logic of this decision will also have a familiar ring to anyone who has heard me discuss monetary policy during the past year. To my mind, the reason for adopting and maintaining the current stance of policy is that it promises to keep the overall economy on an adjustment path where growth is moderate and sustainable. The virtues of this path are that it avoids exposing the economy to unnecessary risk of a downturn, while, at the same time, it is likely to produce enough slack in goods and labor markets to relieve inflationary pressures. I believed a year ago, and still believe now, that such a path is likely and will enable us to achieve our dual mandate—low and stable inflation and maximum sustainable employment.[...]Tighter credit to the subprime sector and foreclosures on existing properties have the potential to deepen the housing downturn. I am nonetheless optimistic that spillovers from this sector will be limited, because these mortgages represent only a small part of the overall outstanding mortgage stock.

 In August, she expressed "appreciable angst" at an FOMC meeting:
"The housing sector obviously remains a serious concern. We seem to be repeatedly surprised with the depth and duration of the deterioration in these markets; and the financial fallout from developments in the subprime markets, which I now perceive to be spreading beyond that sector, is a source of appreciable angst."
Later in the month, she added this:
We've developed a credit crunch. If liquidity isn't quickly restored in these markets, we are looking at a credit crunch—signs of it are everywhere.... Every day we hear about companies that are trying to finance prime quality jumbo mortgages and cannot get the financing to do that and are tightening standards."

Then at the September 18 FOMC meeting she said:
"A big worry is that a significant drop in house prices might occur in the context of job losses, and this could lead to a vicious spiral of foreclosures, further weakness in housing markets, and further reductions in consumer spending... At this point I am concerned that the potential effects of the developing credit crunch could be substantial."
But publicly, eleven days earlier, on September 7, 2007, Yellen delivered a speech to the National Association for Business Economics in San Francisco, California. In that speech, there was no talk of a vicious spiral. She said:
While I do think that the present financial situation has added appreciably to the downside risks to economic activity, we should remember that conditions can change quickly for better or for worse—especially in financial markets—so it’s hard right now to speak with a great deal of confidence about future economic developments. It’s also important to maintain a sense of perspective: past experience does show that financial turbulence can be resolved more quickly than seems likely when we’re in the middle of it. Moreover, the effects of these disruptions can turn out to be surprisingly small.

Bottom line: This is an object lesson. Even if a government official sees a serious crisis developing, the official will not necessarily tell the public. The official will do what is in the best interest of the government agency, he/she represents--and lie to the public about his/her real views.

You need to keep your eyes open and figure things out for yourself. Government officials will often not be announcing publicly their real concerns. They will act just like Janet Yellen and say one thing in public and a completely different thing behind closed doors.


  1. OH MY GOD!!!! My government lies to me??? Perish the thought!

    It's now reached the point where they have zero credibility. They make an announcement and half of the country starts looking for the underlying conspiracy, the other half blindly accepts anything they say because they know it has zero impact on their lives, and the third half (excuse my use of a standard government statistical model) openly laughs at the fools.

    Wouldn't be refreshing if just once, just one freaking time, they told us the truth? The whole country would probably vanish in a puff of smoke...

  2. Very good fact-digging. Much appreciated.

  3. From FOMC Minutes, Sept. 18, 2007:
    "In their discussion of individual sectors of the economy, participants noted that recent data suggested greater weakness in the housing market than had previously been expected. Furthermore, recent financial developments had the potential to deepen further and prolong the downturn in the housing market, as subprime mortgages remained essentially unavailable, little activity was evident in the markets for other nonprime mortgages, and prime jumbo mortgage borrowers faced higher rates and tighter lending standards. The faster pace of foreclosures as subprime mortgage rates reset was also seen as posing a downside risk to the housing market.
    ***Nonetheless, participants observed that conforming mortgages remained readily available to creditworthy borrowers and that rates on these mortgages had declined in recent weeks. Moreover, conditions in the jumbo mortgage market were expected to improve gradually over time.***"

    "Other than that Mrs. Lincoln, how was the play?" If you read enough of this nonsense, you'll go blind. Read through any number of these things and you'll realize that it's all word salad. No one will ever get Bernanke or anyone to admit to any fact or its opposite for the simple reason that the words used have no descriptive - falsifiable - value. "Why, Congressman, if you look at the transcripts, you'll see that I indeed expressed concern over...uhhh..what issue was I supposed to be concerned about? Oh, yeah, that one. Ohhh...I was concerned alright."


    PS: If you see a private jet flying overhead, wave to it. You might be waving to Jon Corzine.
    See you in the FEMA Camp.

  4. Another proof of the Lew Rockwell maxim that you should treat every gov't press release as an exact opposite of the reality of things.