The 5-year old transcripts of Federal Reserve Board meetings make for interesting reading. Bernanke & Geithner basically yawn at concerns raised about housing prices and mortgages.
Let's be clear. Unlike most of those who are likely commenting on this, I do NOT blame these folks for being wrong about the direction of the incredibly complex economy, and how one or two factors might influence the whole. My sense has always been that it is impossible to be consistently right.
What I do criticize is the hubris of making major top-down Federal policy decisions that require that these folks be consistently right. It's simply madness, and I am exhausted with the continuing reaction of both the media and most politicians that if we only had the right folks making these decisions, all would be well. The reality is that these decisions are impossible to make, and will virtually always lead to gross mis-allocations of capital and resources in the economy that lead to recessions.
Update: Here is one example
JUNE 28-29: In summarizing Fed officials’ views, Bernanke notes how it’s getting more and more difficult to make forecasts, describing the economic situation as “exceptionally complicated.” Since housing is particularly hard to project, Bernanke calls it “an important risk and one that should lead us to be cautious in our policy decisions.”
So, this seems like an admirable statement of humility. Given these remarks, the group did nothing, right? Of course not ... they raised interest rates a quarter of a point.