It is a definitive facet of the modern central bank that mystique is often more precious than actual skill or competence, including specific knowledge of the economy or markets (or both together). Such an aura is predicated solely on the plausibility that the central bank actually possess such. Removing that veil, as has been done in some measure since 2007, is a dagger at the heart of the entire enterprise (pun intended).

On January 18 last year, we received more evidence showing exactly what so many have suspected for so long – the Fed knows as little of the modern banking system as the ordinary Americans they claim economic authority over. That was the day the Federal Reserve released the transcripts for the 2007 FOMC policy meetings. And it was a bonanza of confusion, arrogance and, more than anything, far too much comfort in math and models. What was obviously in short supply was common sense and actual knowledge of modern banks (including eurodollar fragmentation and the related size and reach of the shadow system the FOMC had been incuriously abetting for decades).

The transcripts are very different than the sanitized “minutes” that are released several weeks after the actual FOMC meeting. The minutes are fluff, but are so dissected as to place inordinate “value” on the month-to-month changes of a single word or phrase because they lack any deeper context. The transcripts, however, are verbatim catalogues of every conversation – as if taken by a court reporter.

There has to be some leeway given, I suppose, to the transcripts. The Fed’s argument over secrecy has revolved around the desire to conduct monetary business without fear of immediate retribution. There is validity to that argument, but only to a certain point. In 1993, the Fed, after obfuscating about whether such records actually existed, compromised, under threat of legislation, and agreed to release the transcripts after a five-year lag. That had been Fed policy before 1976 when Arthur Burns decided he needed to bury the obvious lack of economic and market prowess then turning the US economy into a stagflationary hell.

So, again, in January 2013 the transcripts for all the FOMC meetings in the calendar year 2007 were released, just as had been done of the 2006 transcripts in mid-January 2012.

It is now mid-February 2014, and we are more than a month past the “normal” chronology of where the 2008 transcripts should have become public. I use quotes there because there is no law or statute mandating the five-year lag nor specifying the date of the release. It is simply Fed policy, subject to its own change of heart (perhaps like Burns in ’76?).

But the 2008 details are different, wholly different than anything else in the archives. Sure, there was a growing sense of problems in 2007 and that was important to get a sense of how badly behind the curve policy was, but all the major decisions and repercussions lay ahead in 2008. It was the year of Bear Stearns, TAF, TSLF, AMLF, PDCF and, despite all that, Lehman. Is there nothing of public importance to see of those meetings?

The longer the Fed delays in releasing the full transcripts (in April 2012 the Fed posted heavily redacted transcripts for the 2007-2010 period that, as the WSJ reported, consisted of little more than casual conversation and “pleasantries”) the more suspicious critics, including me, will become. It’s as if they are afraid of looking so powerless (and clueless) in the face of the exact kind of crisis the institution was intended to “prevent.” I suspect a full reading of the 2008 transcripts will show enough to not only pierce the veil of that mystique, but to do so in a way that may discredit the entire philosophy.

The stakes are enormous and it should be a completely open and public discussion, which is why we may never see them in full.

 

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