In a commentary today, Roger Lowenstein looks at an FOMC transcript from 2004 – back when the central bank could have done something to prevent the nascent housing and credit market bubbles from leading to the worst economic downturn since the Great Depression.

In a newly released transcript of a Federal Reserve Board meeting in March 2004, former Chairman Alan Greenspan argues against disclosing too much to the public lest the Fed “lose control of a process that only we fully understand.”

This statement ranks as a sign of monumental arrogance. It was Greenspan himself who didn’t understand — much less “fully understand”– that the Fed’s lax mortgage regulation and easy monetary policies were setting America up for a disastrous fall.
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At the same meeting, Jack Guynn, the president of the Federal Reserve Bank of Atlanta, warned of “growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida” and buyers were “freely admitting that they have no intention of occupying the units or building on the land but rather are counting on flipping.”

Had the Fed publicized such concerns, it might have led to a crackdown and forestalled millions of bad mortgages that would be written over the following 2 1/2 years. Instead, the Fed released minutes with sanitized phrases that had been stripped of alarming language.

I’ve always maintained that, about five or six years ago, all you had to do to confirm that we were in the midst of a massive financial bubble was to spend an hour at a mortgage broker’s office or talk to a few people waiting in line to buy condos – even those with just a modicum of common sense would have understood what was going on.