Post Mortem Economists At The Federal Reserve Board

The Fed Employs Hundreds Of Economists

The Fed has three research Divisions employing about 450 staff members of which about half are PhD economists. What were all these economists doing while the latest financial bubble evolved and expanded and the Fed kept key short term interest rates at recklessly low levels for too long? Was this a case of analysis paralysis by too many economists? J

In my opinion, so many highly paid economists are a waste of tax payer’s money! I suspect a serious case of overstaffing at tax payers’ expense.

Brilliant Post Mortem Analysis Of Financial Crisis By Fed Economist

The AEA (American Enterprise Institute) just published a brief review titled “Beware of predatory lenders? No, fear predatory borrowers” (by Economist Sita Nataraj Slavov) of a research paper co-written by one of the Fed’s senior financial economists titled “Complex Mortgages”(53 pages long). His name Gene Amromin. This senior economist has been working for the Fed since 2005 according to his bio on the Chicago Fed’s website. Interestingly, this senior economist is not listed among the 450 staff members mentioned above on the Fed’s website, leading me to believe that perhaps the regional Fed’s have their own staff of economists.

One notices already the differences in how these two economists label their papers. The Fed economist is hiding something, because this paper is very insightful which the review brings out clearly.

Here is a large excerpt from the abstract of the research paper (it speaks of itself, emphasis added):

“We find that complex mortgages are used by households with high income levels and prime credit scores, in contrast to the low income population targeted by sub-prime mortgages. Complex mortgage borrowers have significantly higher delinquency rates than traditional mortgage borrowers even after controlling for leverage, payment resets, and other household and loan characteristics. Our analysis of dynamic default patterns, bankruptcy filings, and household characteristics suggests that complex mortgage contracts attract sophisticated borrowers who are more strategic in their default decisions.”

This is a very nice post mortem analysis. Same Fed economist wrote at least one other paper in October 2010 also dealing with some specific post mortem analysis.

In another post mortem paper titled “Predatory Lending and the Subprime Crisis” published on 3/16/2012 same Fed senior economist writes in its abstract that “Our results suggest that predatory lending may have not been instrumental in precipitating the financial crisis as often believed.”.

Clueless Fed Economists

I apologize to pick on Senior Financial Economist Gene Amromin with the Chicago Fed. However, one can look at his list of publications by title only and you find none that would perhaps criticize the recklessly low interest policy of the Fed in the first decade of the 21^st century. None of his paper dealt with the absurd lending standards that were allowed to go on in this decade leading up to the severe financial crisis of 2008 and so on.

I suspect he is not the only senior economist at the Fed who missed the signs.

Ben Bernanke maybe the most clueless of them all.

Maybe one day someone else will study in more detail what these hundreds of Fed economists have written prior or during the severe financial crisis of 2008.