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Economy|As Crisis Loomed, Yellen Made Wry and Forceful Calls for Action

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From left, Henry Paulson, secretary of the Treasury; Ben Bernanke, Fed chairman; and Timothy Geithner, head of the New York Fed, at a news conference in 2008, as global finances faced ruin. Meeting transcripts from the period were released Friday. Hyungwon Kang/Reuters

As the world’s financial system stood on the verge of collapse in October 2008, Janet L. Yellen was not even a full voting member of the Federal Reserve’s policy-making committee, but she was not shy about admonishing her colleagues for not acting faster.

“We need to do much more and the sooner the better,” Ms. Yellen said at a two-day meeting in late October, after the Fed had helped bail out the banks. As president of the San Francisco regional Fed bank, Ms. Yellen attended all the meetings of the Federal Open Market Committee that year but had rotated out of the circle that actually voted on its actions.

After months in which some members of the Fed committee resisted taking steps to prop up the economy, Ms. Yellen lectured her colleagues: “Frankly, it is time for all hands on deck when it comes to our policy tools.”

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New transcripts of the Fed’s meeting in 2008, based on recordings made at the time, provide one of the most revealing views to date of Ms. Yellen, who was sworn in earlier this month as chairwoman of the central bank.



Janet L. Yellen, now chairwoman of the Federal Reserve, was a nonvoting member of the Fed policy-making committee in 2008 but cajoled it to act swiftly. Alex Wong/Getty Images

But even as she pushed for more aggressive policies to deal with the financial crisis and the economic downturn, Ms. Yellen also displayed an ability to disarm her critics with a sort of gallows humor, even in the darkest days.

“In the run-up to Halloween, we have had a witch’s brew of news,” she said to the laughter of her colleagues, before quickly apologizing for her sarcasm.

What the transcripts show is a woman who was constantly pushing her peers — and also cleverly cajoling them — to do more to help ordinary households, not just financial institutions. At the same time, she urged her colleagues to look at the flaws in the banks that caused the crisis in the first place. “I don’t believe in gradualism in circumstances like these,” Ms. Yellen said in March 2008, months before the situation came to a boil.

In the end, during the most terrifying moments, Ms. Yellen helped persuade even the staunchest opponents of more aggressive actions to go along with the policies that the head of the Fed, Ben S. Bernanke, wanted. At the end of October, the head of the regional Fed bank in Dallas, Richard W. Fisher, a member of the central bank known for his advocacy of higher interest rates, said that for one of the few times, he was following Ms. Yellen’s lead.

“I will conclude with actually once again agreeing with President Yellen, as I think I have done twice in history,” Mr. Fisher said.

Ms. Yellen was usually squarely in line with Mr. Bernanke and the more activist members of the Federal Open Market Committee. But while Mr. Bernanke, as chairman, played the role of mediator and consensus builder, Ms. Yellen often became the most outspoken defender of the policies, and a reference point for others. The meetings of 2008 are littered with moments where other members of the committee used Ms. Yellen to support their own points, leading to lines like, “as President Yellen pointed out,” and “as President Yellen noted.”

But even as the committee agreed to take ever more extraordinary actions, Ms. Yellen voiced her steady disappointment that her colleagues were not doing more to help the economy.

“Historical precedents, such as the case of Japan, teach us that it is a mistake to act cautiously as the economy unravels,” she said in late October.

It has long been known that Ms. Yellen was among the earliest members of the Fed to recognize the severity of the problems hitting the economy in 2007. In January 2008, while Mr. Fisher was pointing to the optimism of chief executives in Texas, Ms. Yellen was not mincing words about her views.

“The severe and prolonged housing downturn and financial shock have put the economy at, if not beyond, the brink of recession,” she said.

As a forecaster, Ms. Yellen was at something of an advantage. She was based in California, where some of the earliest signs of distress appeared. In a lighter moment, she joked that the problems were not just in the collapsing housing market.

“East Bay plastic surgeons and dentists note that patients are deferring elective procedures,” she said to laughter, according to a transcript of the meeting on Sept. 16, 2008.

“The Silicon Valley Country Club, with a $250,000 entrance fee and seven- to eight-year waiting list, has seen the number of would-be new members shrink to a mere 13,” she said to more laughter.

But she also was looking for clues anywhere she could find them. In June, she told her colleagues about employees at her bank who “had their home equity lines slashed.”

“One has deferred a planned home renovation project as a consequence,” she said. “If that is happening to them, I can only imagine how hard it must be to get a loan if you have a merely average credit rating.”

But even Ms. Yellen, for all her fears about a looming recession, underestimated what was coming down the road. In April, she was still projecting that the economy would grow 1.5 percent in the second half of the year. After the March rescue of Bear Stearns, the investment bank, Ms. Yellen said that “the likelihood of a severe financial panic has diminished.”

By the summer, though, even with some data signaling an improvement, Ms. Yellen showed an unusual degree of skepticism, arguing that “given the numerous large and worsening drags on spending, a couple of months of data aren’t enough to convince me that we are on a solid trajectory.”

As the new leader at the Fed, now the nation’s leading bank regulator, the skepticism Ms. Yellen displayed toward Wall Street that is revealed in the transcripts is likely to prove particularly important. Early in 2008, she pointed to a paper by the economist Raghuram Rajan, now the head of India’s central bank, about the danger of the structure of Wall Street bonuses.

“It seems to me that we have had an awful lot of booms and busts in which this type of incentive played a role,” she said.

Timothy F. Geithner, the president of the New York Fed at the time, pushed back against Ms. Yellen and the idea that overhauling bonuses was necessary. After the election of Barack Obama in November, Mr. Geithner rose to become secretary of the Treasury, and few changes were made to rules about bonuses.

Ms. Yellen might intend to approach the issue differently. Back in 2008 she said that proposals to alter bonuses “were not popular,” presumably referring to financial circles.

That didn’t scare her off.

“I think this is worth some thought,” she said.

A version of this article appears in print on February 22, 2014, on page B1 of the New York edition with the headline: Transcripts From a Time of Crisis .

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