nytimes). The protocols reveal that in early 2008 the Federal Reserve underestimated the severity of the recession. The Fed also admitted that it was wrong to let Lehman Brothers fail, because this caused panic on the markets and exacerbated the economic slump.
But the transcripts also show, "that Fed officials responded decisively in the final months of 2008, probably preventing an even deeper recession", writes MarketWatch (marketwatch). "By the end of 2008, the Fed had reduced short-term interest rates nearly to zero for the first time since the Great Depression, and it had become a primary source of funding", adds MarketWatch.
Everybody makes mistakes. Often we are learning from our failures, becoming better. Life is a continuing learning process. The Fed, led by humans, is no exception. As the transcripts reveal, the central bank learned during the last recession.
The Federal Reserve Bank was created in 1913 as a response to the frequent crises before. The 19th century and the begin of the 20th saw recurrent bank runs as people frequently lost trust in their banks and liquidated their accounts which started chain reactions of bankrupts and led to sharp recessions (described in this excellent book: An Empire of Wealth: Rise of American Economy 1607-2000, by John Steele Gordon amazon). The Fed was implemented as a kind of monetary fire department to attenuate crises by pumping additional liquidity into the financial system.
In the 1930s the Fed made a huge mistake: They failed to counter the shrinking money supply of the U.S. economy - a response to the unfolding recession - which aggravated the contraction and caused the Great Depression. But it seems the central bank has learned something. After World War II recessions where much less frequent than before the implementation of the central bank. The Fed´s responses to the recession 2008/09 - zero interest rates and massive monetary stimulus programs (Q1, Q2, Q3) - also show that she had learned much from the Great Depression. Thus the recession 2008/09 was much shorter and less harmful than the Great Depression from 1929/32.
I am not afraid of the next crisis whenever this will come. It will be less harmful than the last one because of the continuous learning process. I suppose that then the Fed - and her sisters in Europe & Asia - will respond better than in the past, using the knowledge accumulated in the recent years.