The real surprise in the Fed’s 2007 transcripts: How much they knew, how little they understood: [T]here were hints of clear-headedness. Timothy Geithner… had a consistent view that fall that the financial system was unraveling and that it was no time for policy gradualism. Eric Rosengren of the Boston Fed, Janet Yellen of the San Francisco Fed, and governor Frederic Mishkin were, by the end of the year, arguing for more interest rate cuts and seemingly pulling his hair out over their colleagues’ sanguine views of the outlook….
But I expected to see much more evidence… of understanding the possibility that the entire financial system had become a house of straws built on mortgage securities that were anything but secure, with all sorts of financial institutions over-levered and overly dependent on assets that were near-impossible to value. And I expected them to understand that once a problem that deep begins correcting itself, it can spiral into all sorts of dangerous directions. Which this one did.