Morning Must Read: Jon Hilsenrath Looks at the Fed in 2008

Jon Hilsenrath: Geithner Among Fed Losers in 2008, Dudley Among Winners: “The story on Chairman Ben Bernanke has been written many times: He was slow to respond… but moved with command and authority… once he recognized what was at stake.

How about everyone else? Here’s a subjective rundown….

WINNERS: William Dudley, head New York Fed’s markets group: He got it…. His presentations to the Fed’s policy making Federal Open Market Committee throughout the crisis were thorough and raised the right red flags….He almost always handled questions from doubting policy hawks—the officials who tended to be more focused on inflation risks– with a cool hand…. Boston Fed President Eric Rosengren: At almost every point in the crisis, he put his fingers on real problems…. San Francisco Fed President Janet Yellen: We’ve already reported that transcripts from 2008 and earlier Fed policy meetings showed Ms. Yellen, now Fed chairwoman, had pretty good judgment about risks brewing in housing, the financial markets and the broader economy….

LOSERS: New York Fed President Timothy Geithner: Mr. Geithner, a future Treasury Secretary, ran the New York Fed through most of 2008. He was supposed to be the Fed’s eyes and ears on Wall Street, but events spun out of his control. His commentary at meetings lacked Mr. Dudley’s precision and he often appeared engrossed in disagreements with the Fed’s policy hawks…. Mr. Geithner was asked by a colleague if he was in touch with the bond insurers. He responded vaguely…. Later at that January meeting he offered this assessment of financial conditions: ‘In the financial markets, I think it is true that there is some sign that the process of repair is starting’…. Fed Vice Chairman Donald Kohn felt the need to gently push back in that case in January: ‘The repair process that President Geithner referenced among financial institutions strikes me as very fragile and quite incomplete’. Bear Stearns collapsed several weeks later….

Fed governor Frederic Mishkin: Mr. Mishkin produced a regular stream of cringe-inducing personal commentary throughout the crisis…. Mr. Mishkin deserves some credit for usually being alert to the risks. On August 5, when others worried about high inflation, he warned, ‘I am very concerned about the headwinds as a result of the difficulty in recapitalizing financial institutions … I see downside risks as having risen substantially’. Still, the message often got drowned out by off color commentary…. Thomas Hoenig… and Richard Fisher: It turns out they were focused on the wrong problem for much of 2008. While they worried about inflation, the foundations of the financial system and the broader economy were cracking…. Others in the hawk camp were Dallas Fed President Richard Fisher, Philadelphia Fed president Charles Plosser and Richmond Fed President Jeffrey Lacker.”

Let me defend Rick Mishkin in his commentary to the FOMC in 2008: it’s very effective in making people listen to him. You can dislike the overly-sharing over-personal style. You can find it a bracing and amusing wakeup call in a long, grey, and boring meeting. But even if you dislike the style, if you peer beneath it you will find that what Rick was saying about the substance was dead-on and very smart.