You have probably heard a lot of noise about what was said about the housing bubble at Federal Reserve meetings in 2006. The Federal Reserve Board recently released the transcripts from its 2006 Open Market Committee (FOMC) meetings with the mandatory five-year lag and it turns out the Fed was pretty clueless. Dean Baker does a pretty good job of getting to the meat of the issue in his aptly titled post Alan Greenspan’s ship of fools. Baker concentrates on the housing substance but also offers up a quote from Timothy Geithner, then the NY Fed chief, that I think is quite revealing. Geithner remarks in addressing outgoing FOMC chair Greenspan:

"I’d like the record to show that I think you’re pretty terrific, too. And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative."

Who says stuff like that? Seriously. We’re not talking about high school here. This is a Federal Reserve transcript.

I don’t have anything else to say except that Geithner is now Treasury Secretary and has outlasted every major figure on President Obama’s economic team. You needed to read that statement because it tells you how, behind the scenes, the American financial system actually works.

P.S. – If you are thinking that sucking up to power doesn’t work because people can see right through it, you’re wrong. Sucking up definitely works.