Paul Samuelson says it’s somewhat understandable why the Federal Reserve last decade missed all the signs pointing toward an eventual housing crisis: There was no long-term perspective.
By that, Sameulson means there hadn’t been a full-blown financial crisis in the U.S. since the Great Depression, and so Fed officials just couldn’t see a crisis coming because they had never seen a crisis coming before. He notes that the Fed, for decades, had viewed its primary job as “smoothing out” business cycles, not watching out for mega-storms, and that sometimes polices to ensure short-term prosperity actually create unseen long-term problems.
Boston Federal Reserve Bank president Eric Rosengren once said roughly the same thing.
After the 2008 Wall Street disaster, Rosengren noted that the main thing policy makers learned was that they needed to learn a lot more about financial markets and the potential for financial meltdowns. The problem is that a full-blown financial crisis is sort of like Haley’s Comet: It only comes around now and then, so there’s not a lot of time to fully observe and collect data on it before it’s come and gone.