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Notes From 2009

Ben Bernanke Has an Impressive Passive-Aggressive Streak, and Other Things We Learned in the New Fed Transcripts

The annual release of transcripts of Federal Reserve meetings is a time to take stock of how some of the nation’s top economic policy makers made their decisions, with the comfortable advantage of five years of hindsight.

But it is also an annual reminder of the less predictable side of the nation’s central bank, as we get a sense of their personalities, internal disputes and sense of humor.

Here are some of the particularly interesting, revelatory or amusing tidbits we found in the 2009 transcripts of Federal Open Market Committee hearings, released Wednesday.

Ben Bernanke and Pareto Efficiency

In January 2009, the American economy was in free-fall, the global financial system was still precariously near the brink of collapse, and what is now known as the Great Recession was in full boil. But at a Fed debate on the central bank’s extensive, unconventional programs to try to funnel money to credit markets, there was extensive hand-wringing over the possible ill effects of the Fed’s efforts to fight the crisis.

It featured this passive-aggressive exchange between Mr. Bernanke and the Richmond Fed president, Jeffrey Lacker, which showed just how differently the two viewed the world at that time. He used the economic concept of “Pareto efficiency,” a point at which it isn’t possible to make anyone better off without making someone else worse off.

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At a forum in Richmond, Va., in 2010, the Federal Reserve chairman, Ben Bernanke, right, sat with the president of the Federal Reserve of Richmond, Jeffrey Lacker.Credit...Steve Helber/Associated Press

“I am going to regret this, but I am going to ask you a question,” Mr. Bernanke said to Mr. Lacker. “Do you think the United States economy is at a Pareto efficient point at this moment?”

“Probably,” the Richmond Fed president replied.

“With the best position we can be at right now?” Mr. Bernanke continued.

“Roughly speaking. All constraints taken on board.”

Bernanke continued, “The question was, Is the United States economy at a Pareto efficient point at this moment? And the answer was ‘yes.’ Okay. So that is obviously a different view.”

The Rich Old Man and the Housing Market

As the Fed weighed strategies for arresting the economic tailspin in March 2009, including the collapsing housing market, Elizabeth Duke, a member of the board of governors, offered a colorful way of thinking of their task.

“I’d like to start with the story of an elderly wealthy gentleman who had taken a young bride and begun to spend money like crazy,” Ms. Duke said. “His friends got very concerned that he was going to go through his entire fortune, and they elected one of their number to go and talk to him about it. He said: ‘Sam, we’re really concerned. We want to make sure that you know that you can’t buy love.’ Sam said: ‘I know you can’t buy love, but if you spend enough money, you can buy something that looks so close you can hardly tell the difference.’ ”

What does this have to do with housing? She continued:

“So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices. It seems like the best time, when we have the synergies with the housing program, which should reduce foreclosures and should increase the ability to refinance. Both borrowers and purchasers are so incredibly hair-trigger sensitive to what goes on with mortgage interest rates. Mortgage interest rates went down when we made the announcement before, but that was in November, and that was not the season when people buy houses. If we do this in the spring, when there are other programs that would support it and when it’s pretty obvious that there’s not going to be any fiscal stimulus coming along that would also further support house purchases, then maybe we’ve got a window of opportunity where we can go in there and put a floor under house prices, and that will start to move some of these other things.”

And so what would become a multi-trillion dollar effort to pump money into mortgage markets got a key boost.

Not Much Good News From Dallas

The Dallas Fed president Richard Fisher routinely calls dozens of corporate chieftains in advance of a Fed policy meeting to gather insight into what is happening in the economy. It seems to have been a rather gloomy experience in advance of the Fed’s March 2009 meeting:

“Mr. Chairman, I want to report on the microeconomic input I received from my corporate contacts, which numbered some 29 C.E.O.s around the country whom I talked to before this meeting.”

It confirmed the view that the economy was in very bad shape. Mr. Fisher continued: “In fact, one actually called me and said, ‘Do you want some good news?’ And I said, ‘Please.’ ”

“He said, ‘Call somebody else.’ ”

Ben Bernanke’s Past Life

As is the custom, at the first regular meeting of the Federal Open Market Committee each year, a vote must be taken on who will be the chair and vice chair. (The outcome is preordained, with the Fed chairman taking the lead spot and the New York Fed chief becoming No. 2.)

In January 2009, when Donald Kohn formally nominated Mr. Bernanke for the job — at a time of profound crisis and steep economic decline — he added a coda:

“Mr. Chairman, it is a pleasure and an honor to recommend Ben Bernanke to be chairman of this committee. I am not sure what sins you committed in an earlier life, but I sure hope you had fun.”

Plosser Goes Rogue

Presidents of the dozen Federal Reserve banks have research staffs of their own to develop forecasts for the economy. But they don’t have to listen to them. That’s what the Philadelphia Fed president, Charles Plosser, did at the January 2009 policy meeting when he took a decidedly more optimistic tone than his own team recommended.

“I think there is still a possibility that at some point — maybe not in the first half of this year and maybe not even in the second, but there is still the hope — things could turn fairly quickly. I am not basing a lot on that, but I do feel somewhat more optimistic than a lot of people — including my staff, by the way. They forced me to say that they take no responsibility for this, and so I am letting them completely off the hook.”

“They disowned you,” the Kansas City Fed president, Tom Hoenig, said.

“They have disowned me,” Mr. Plosser said. “They have had it.”

He was both right and wrong, as it happens. The economy did begin expanding in the summer of 2009, but it remained a weak, subpar expansion.

Yellen Doesn’t Drink Like Yeltsin

In case there was any doubt, the sober-minded central banker Janet Yellen does not, apparently, drink alcohol in the quantities associated with the similarly named (and more than occasionally inebriated) former Russian president Boris Yeltsin.

“I agree with Presidents Evans and Yeltsin — Yellen,” the Boston Fed president Eric Rosengren said at the September 2009 meeting.

“I’ve gone drinking with Janet — she’s no Yeltsin,” the Dallas Fed president Richard Fisher said.

Mr. Bernanke tried, apparently unsuccessfully, to tamp down the silly talk. “O.K. The last two minutes will be struck.”

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A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: Behind the Scenes at the Fed. Order Reprints | Today’s Paper | Subscribe

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