It turns out the people in charge of running the U.S. economy thought, in 2006, that the housing market (which was faltering even then) was going to be just fine and wouldn't affect the rest of the economy at all. And now that transcripts have been released, covering eight meetings of the Federal Open Market Committee, we can see the folks who were in charge of safeguarding the economy crack jokes about desperate homebuilders as they completely misread the health of the nation's economy. Timothy Geithner, at the time the president of the Federal Reserve Bank of New York and currently the Treasury Secretary, said "We just don’t see troubling signs yet of collateral damage, and we are not expecting much." Susan Bies, a Fed governor, even suggested a housing downturn could be a good thing because it would encourage other types of investments. "I really believe that the drop in housing is actually on net going to make liquidity available for other sectors rather than being a drain going forward, and that will also get the growth rate more positive," she said at a June 2006 meeting. No wonder the Fed was reluctant to release the transcripts.

The only one who comes off looking halfway good in The New York Times report is Ben Bernanke, who had just taken over from Alan Greenspan as Federal Reserve chairman at the time the transcripts were made. Bernanke at least changed his tune as warning signs grew. He said in March 2006 (per the Associated Press), "I agree with most of the commentary that the strong fundamentals support a relatively soft landing in housing," and, "I think we are unlikely to see growth being derailed by the housing market, but I do want us to be prepared for some quarter-to-quarter fluctuations." But by September he sounded a lot less sunny: "I don't have quite as much confidence as some people around the table that there will be no spillover effect."