When the full history of the Great Recession is written, January 31, 2006 might represent the moment the nation's best economists caught their first glimpse of the housing catastrophe ... and laughed.
Yesterday, the Federal Reserve released the transcript from its 2006 meeting, in which fears about the housing crisis were downplayed and nearly all participants agreed that the economy would continue to grow for the next two years. In fact, later that year, national income growth would turn negative. The next year, we officially entered a recession.
The word "[Laughter]" appears in this soon-to-be-famous Fed transcript at least 45 times. In retrospect, it was mostly gallows humor. Fed Chair Alan Greenspan chides his board's ability to predict the future, and the board laughs. David Stockton makes an unintentionally prescient joke about part-time retirees. Tim Geithner, and many others, lavish the outgoing chairman with effusive praise and predict clear skies ahead. Here are the ten most notable, ironic, or actually laugh-worthy laugh lines, in order of their appearance in the transcript:
Alan Greenspan on the Fed's inability to predict the future: "The spread between the thirty-year [interest rate] and the fifty-year is really quite pronounced. And it is suggesting that it cannot be an economic forecast. We have enough trouble forecasting nine months." [Laughter]
David Stockton on part-time work in retirement: "I would suspect that workweeks would tend to decline later in an individual's life cycle, certainly relative to the prime age working years." (Greenspan: "Individuals also may be more affluent so that they have an ability to actually--") "Or affluent and more likely to be taking on part-time work in retirement." [Laughter]
Alan Greenspan on lunch: "In the eighteen years I've been here, we've gone from an average presentation of three minutes to one of six minutes." [Laughter] "The drift has been inexorably upward. And I will suggest to you that, unless we are somewhat unusually restrained today, we're going to run way over what our luncheon plans are, and we will be forced to call them dinner." [Laughter]
Janet Yellen on Alan Greenspan: "If I might torture a simile, I would say, Mr. Chairman, that the situation you're handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot. [Laughter]
William Poole on naming Greenspan's next two books: "Given my interest in making sure we have clear communication, I have a suggestion for a title for your [Greenspan's] first book. It is in line with some books by your predecessors. So I suggest The Joy of Central Banking. [Laughter] And I suggest that your second book be More Joy of Central Banking. [Laughter]
Alan Greenspan on a title for his book: "How to Be a Joyous Central Banker, Even Though We Don't Have Hearts." [Laughter]
Tim Geithner on thanking Greenspan: "I'd like the record to show that I think you're pretty terrific. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you're even better than we think is higher than the alternative." [Laughter]
Susan Bies on thanking Greenspan: "As an old risk manager, I was glad to feel right at home with your approach to monetary policy." [Laughter]
Roger Ferguson on thanking Greenspan: "As a mere cadet, if you will, sitting next to the monetary policy Yoda..." [laughter]
Donald Kohn on the his optimism about the economy: "My forecasts for 2006 are very close to those I submitted last January and June. That's partly a product of innate stubbornness." [Laughter]