Anniversary of a Fed Blunder

In the long, tragic chronicle of the Great Recession, April 30, 2008, doesn ’t resonate as an infamous date. It lacks the notoriety of March 16, 2008, when, by guaranteeing $30 billion of Bear Stearns’ assets, the Federal Reserve crossed a last-resort lending Rubicon, extending its safety net to an investment bank for the very first time. Nor does it conjure up headline s like those of September 15, 2008, when the Fed reversed course by letting Lehman Brothers — a much larger investment bank — go under.Yet April 30, 2008 was no less critical a turning point in the recession ’s history than these other dates, for it was then that the FOMC, having cut the Fed’s target interest rate to 2 percent, resolved to cut it no further — drawing a line in the sand by which it unwittingly helped seal the fate of the US, and world, economy.At the time neither Fed officials nor anyone else knew that a recession had started, let alone that it was to be the worst recession since the 1930s. Not until December would the NBER ’s Business Cycle Dating Committee officially decide that the economy had been shrinking for a year. Instead, having apparently calmed markets by helping to rescue Bear, Fed officials imagined that the worst was over. “When I look at where I was in the last [March] FOMC meeting,” Frederic Mish kin told his fellow FOMC members during that fateful late April gathering, “I sounded so depressed…as though I might take out a gun and blow my head off… . Bu...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs