Inside the Fed in 2006: Missing the Coming Crisis

Minutes recently released from the 2006 meetings of Federal Open Market Committee (FOMC) offer some disturbing insights into the failure of Fed officials to understand how deeply intertwined the housing sector and financial markets are.  This New York Times piece goes into much detail regarding this and other less-than-flattering aspects of these meetings.  While residential investment represents a tiny four percent (4%) of Gross Domestic Product (GDP), it has far reaching backward- and forward-linkages into many other components of GDP, such as construction, construction materials, durable goods, home furnishings, brokerage and financial services.  For this reason, it is often said that when it comes to the strong effect residential investment has on the economy, that housing is the “tail that wags the dog.”

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