The Federal Reserve identified issues behind the housing market crisis in 2007 and 2008 at a meeting the middle of 2005, but failed to recognize the magnitude of the danger posed by the risks, according to Financial Times. A newly released transcript of the minutes of the June 2005 meeting of the Federal Open Market Committee showed that the policymakers decided to remain idle after a discussion of a potential house price bubble, increasing unconventional mortgages, and low quality lending spurred by new securitization uses.
A Fed economist, David Stockton, said during the meeting, “Our story basically is that we’re worried about valuations in the housing market, but we don’t necessarily see that as having profound consequences for your policy going forward.” Other comments reveal that a drop in home prices was not seen as a threat to financial institutions, with the policymakers believing that securitization was displacing risk from banks and moving it to investors and hedge funds. That belief made officials “somewhat less concerned about the size and consequences of a housing bubble.”