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Transcripts Show Fed Underestimated Crisis In 2007

As it turned out, Stockton and company were wrong, by a longshot.

Economic growth shrank for five of the next six quarters. The economy lost 8.7 million jobs in 2008 and 2009. The unemployment rate, which was 5 percent in December 2007, spiked during the next two years and hit a post-recession peak of 10 percent in October 2009.

Since then, Bernanke has frequently acknowledged that the recovery proved frustratingly slow. Unemployment remains a high 7.8 percent. Economic growth has been subpar at a roughly 2 percent annual rate for the past three years.

Stockton's forecasts weren't out of line with most private economists at the time.

In March 2008, investment banking giant Bear Stearns needed to be rescued with the help of Fed support. In the fall, mortgage giants Fannie Mae and Freddie Mac were taken over by the government.

In September 2008, the collapse of Lehman Brothers set off a full-blown financial panic.

___

AP Business Writer Marcy Gordon contributed to this report.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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