In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.
The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.
“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.
“I would have to say California,” said the economist, Richard Dekaser.
“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.
This time the warnings were correct …
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