It's a wonder anyone on the board who was so far off still has a job at the Federal Reserve. Even worse, how is Tim Geithner running the US Treasury and how is Ben Bernanke still the Fed president? This wasn't a small miss, but a massive miss.
The problem is that they were all ordinary, mainstream thinkers so of course they dismissed analysis from outsiders who questioned the building problems. The Fed board is much too insulated from the real world. If nothing else, these transcripts from 2006 show that we need to also reform the Fed, to allow more outside thinking. They were falling over themselves to congratulate Alan Greenspan on his way out and completely missed the crisis that was coming. As we saw after 9/11, how badly does one have to screw up in Washington to lose a job? LA Times:
"We believe that, absent some large, negative shock to perceptions about employment and earned income, the effects of the expected cooling in housing prices are going to be modest," said Timothy F. Geithner, the current Treasury secretary, who then was president of the Federal Reserve Bank of New York. When Geithner was finished, Bernanke asked, to a round of laughter, "Anything to report on co-op prices in Manhattan?" "As in many cases, I am not sure what you can take from the anecdote, but I guess some people say that you see a little of the froth dissipating," Geithner replied. "But I don't think the adjustment is acute.Yeah, that's a funny one. Too bad the joke was on the rest of the country.