Fed Didn’t Expect Housing Bust in '06

At least they won’t make that mistake again. Thursday, The Federal Reserve released transcripts of 2006 meetings, revealing that the officials had little idea that the housing bust would shake the entire U.S. economy. The transcripts show frank meetings, held every six weeks to assess the economy, where officials laughing about some of the promotions home builders were using to attract buyers (like giving away cars). Timothy Geithner—then the president of the Federal Reserve Bank of New York—says that the expansion going forward looks good. Others say a drop in housing sales may actually funnel money to other areas of the economy. The transcripts are held for five years before being released. While the recordings show a general lack of understanding of how the economy worked—and perhaps an overdependence on broken models—there is some good news: current Fed chairman Ben Bernanke is one person who continuously warns that troubles with the housing market could have grave consequences.