Tuesday, August 6, 2013

"Prescient" is 2000, not 2007

You all know I like Yellen for the Fed, but Bob Murphy is right on in laughing at all these flowery adjective being attached to some nice speeches that she made in 2007. Bob writes:
"here’s a new example (HT2 DeLong). James Hamilton writes: “At the outset of the crisis, however, Ms Yellen was also one of the people who saw most clearly the magnitude of the problems facing the economy…. Her speech to the National Association for Business Economics in 2007, when reread today, strikes the reader as amazingly prescient.”  
OK, it’s not hard to google that speech. Yes, she did a good job explaining the financial crisis that was already underway. She did indeed point out that the downturn in the subprime market–again, which was already occurring before everyone’s eyes–was being amplified because of derivatives that, in retrospect, the ratings agencies and other institutions hadn’t fully understood. So this was good explanation on her part, but not prediction."
Come on guys. Don't give guys like Bob ammo like this! He's wrong about monetary policy. He's not stupid, so he's going to catch it :)

Prescient would be someone like the late Ned Gramlich, who I had the privilege of working with while he was a senior fellow at the Urban Institute. He too was thinking very deeply about the sub-prime crisis in 2007, just like Yellen. In fact I got to know him when I helped him out as a wee research assistant on a book on that subject.

At that point he was at the end of the career and looking back on the problems with sub-primes. But he was brow-beating Greenspan on this when he served on the Board of Governors back in 2000. That's "prescient" - perhaps even "amazingly prescient". Whether or not Yellen has that record she could still be well qualified, but if we're going to be tossing around words like that lets at least maintain a sense of proportion.


  1. Freddie Mac announced it would stop purchasing the most risky subprime mortgages and related securities in Feb 2007.

    Regulating them would be less of a concern if GSEs weren't buying them.

    I would be interested in what Gramlich wanted specifically. Blocking teaser rates would probably be a good thing.

  2. I don't claim to have seen the sub-prime house mortgage crisis or the bank run that ensued, but I did get the vague feeling back in the summer of 2004 that there was a lot of money being thrown around willy-nilly (by both the American public and private sectors) while the United States was still occupying Iraq. I got a hazy sense that the course of action on the part of both sectors was madness.

    Also Daniel, there were other people besides your old colleague, Edward Gramlich - Robert J. Shiller being a famous example, and I also believe that William R. White did have a piece written in the early part of the first decade (sometime after 2000...I think it might've been 2003) of the First Billenium that was also prescient.


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