Black Swans

On Thursday (1/17/2013) The U.S. Federal Reserve Bank released the transcripts of its 2007 meetings. [Late 2007 was when the the great housing and mortgage bubble began to suddenly deflate.]

If you depend upon the most knowledgeable economic and financial experts to anticipate the economy’s behavior, and / or to give you advice on how you should behave, so as to grow and protect your assets, the two articles below may cause you to doubt the ability of such experts, and to confirm the existence of Black Swans.(1)
Days Before the Housing Bust, Fed Doubted Need to Act By Binyamin Applebaum – pub. New York Times - 1/18/2013, at: http://www.nytimes.com/2013/01/19/business/economy/fed-transcripts-open-a-window-on-2007-crisis.html?nl=todaysheadlines&emc=edit_th_20130119

Records Show Fed Wavering in 2007 By Jon Hilsenrath and Christina Peterson – pub. Wall Street Journal - 1/18/ 2013, at: http://online.wsj.com/article_email/SB10001424127887323968304578249664285846402-lMyQjAxMTAzMDEwOTExNDkyWj.html?mod=wsj_valettop_email
Timothy Geithner's flat-footed reaction is even more amazing when you realize that Geithner worked in the Japanese Embassy, as a Treasury Department attaché, at the beginning of Japan's "Lost Decade".

Japan's "Lost Decade' was a financial crisis which began with the collapse of the Japanese commercial real estate bubble. The collapse of the Japanese commercial real estate bubble created problems for the Japanese economy which are very similar to the problems U.S. and global economies have been experiencing since 2008.(2)

From a January 18, 2013 New York Times article, "Days Before The Bust, Fed Doubted Need to Act" By Benyamin Applebaum (at the time of the Federal Reserve's transcript's creation William Poole, was the Chief Executive Officer of the Federal Reserve Bank of St. Louis).
“The outcome would have been different only if the Fed and others had reacted back in 2004, 2005, 2006” to curtail subprime mortgage lending, Mr. Poole, now a senior fellow at the libertarian Cato Institute, said on Friday in an interview on CNBC.(3)
Footnotes:
(1) For more on Black Swans see Wikipedia entry, at: http://en.wikipedia.org/wiki/Black_swan_theory 

(2) For more on Japan’s Lost Decade see Wikipedia entry, at: http://en.wikipedia.org/wiki/Lost_Decade_(Japan)

(3) For the full CNBC interview with Mr. Poole go to YouTube and watch, An Interview with former President of the St. Lewis Federal Reserve, William Poole:

More:
"The Role of the Government Sponsored Enterprises and Federal Housing Policy in the Financial Crisis”, at: http://www.scribd.com/doc/106248756/The-Role-of-the-Government-Sponsored-Enterprises-and-Federal-Housing-Policy-in-the-Financial-Crisis

On YouTube key-words-search, and watch, a January 1998 PBS NewsHour interview with then President Bill Clinton, titled "Bill Clinton: Laying the Foundation for The House of Cards"

The Rating Agency Scandal

The Scandal Too Few Are Discussing

You might be aware that in the United States we have what are called Nationally Recognized Statistical Rating Organizations (NRSRO’s). Under this system a small number of credit rating agencies (Moody’s, Standard & Poors and Fitch) were approved as raters of the credit risk of debt instruments. Institutional purchasers of debt, like insurance companies, banks, and general fiduciaries, are required by law to use these organizations’ ratings as a guide to their purchases. In general, such investors are required by law to only purchase debt instruments which are rated by the NRSRO’s as “investment grade”. Other’s investing in debt also rely on the NSRO’s ratings as a indication of the risk profile of their investments. [See, Nationally Recognized Statistical Rating Organizations Wikipedia entry at:    http://en.wikipedia.org/wiki/Nationally_Recognized_Statistical_Rating_Organization ].

Recently, I became curious about Financial Crisis Inquiry Commission (FCIC) hearing testimony and Congressional hearing testimony on the subject of the NRSRO’s role in the housing bubble and the ensuing financial crisis. Fortunately, C-SPAN maintains a video library of such hearings, and in the video library I was able to find and watch some interesting questions and answers on the role of the NRSRO’s in the housing bubble and financial crisis.

The full hearings are a bit long, but I was able to copy a couple exchanges which I thought were interesting and characteristic of each of the two hearings from which they came. I’ve posted my brief video-clip copies on youtube. I thought you might find the video-clips interesting. The URL’s below are hyperlinked to the hearings

Too Little, Too Late (compare the dates Mr. Raymond McDaniel mentions to your bubble timeline):

The Role of The Rating Agencies (pursuing market share?):