What Were They Thinking? Swarthmore Study Examines Federal Reserve Prior to 2008 Financial Crisis

Newswise — Six years after the start of the Great Recession, a new study from three Swarthmore College professors illustrates how the Federal Reserve was aware of potential problems in the financial markets, but did not take the threats seriously.

Published in the Review of International Political Economy, the study is the result of a collaboration between Swarthmore College economist Stephen Golub, political scientist Ayse Kaya, and sociologist Michael Reay.

The team looked at pre-crisis Federal Reserve documents to come to its conclusion, focusing particularly on the transcripts of meetings of the Federal Open Market Committee. The meeting transcripts indicate that policymakers and staff were aware of troubling developments but remained largely unconcerned.

Drawing on literatures in economics, political science and sociology, the study demonstrates that the Federal Reserve’s intellectual paradigm in the years before the crisis focused on ‘post hoc interventionism’ – the institution's ability to limit the fallout should a problem arise. Additionally, the study argues that institutional routines and a “silo mentality” contributed to the Federal Reserve’s lack of attention to the serious warning signals in the pre-crisis period.

To speak with Professors Golub, Kaya, or Reay, please contact Mark Anskis ([email protected] / 570-274-0471) in the Swarthmore College communications office.