In late 2005, as the housing bubble that would ultimately pop and bring down the economy continued to inflate, Federal Reserve economists briefed the central bank's then chairman, Alan Greenspan, on the state of the economy during a meeting of the Federal Open Market Committee.
Amid an onslaught of data showing a cloudy forecast, one economist raised a point at that Dec. 13 meeting that could have brought home the case that the Fed had let the housing market spin out of control.
"I offer one more piece of evidence that I think almost surely suggests that the end is near in this sector. While channel-surfing the other night, to the annoyance of my otherwise very patient wife, I came across a new television series on the Discovery Channel entitled 'Flip That House,'" economist David Stockton said, prompting a roomful of laughter according to the transcript. "As far as I could tell, the gist of the show was that with some spackling, a few strategically placed azaleas and access to a bank, you too could tap into the great real-estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis. [Laughter]"
The Fed, the home of many of the most ardent believers in market efficiency, did not go through an existential crisis, however, and did little to slow down surging prices or warn consumers that "the end is near." Instead, many consumers continued to purchase homes under the mistaken impression that housing prices would continue to rise.
In those homebuyers' defense, elite economists were saying the same thing. "[I]t is hard to say that the housing market is anything but robust," Roger Ferguson, a Fed governor, said at the same 2005 meeting.
Earlier that year, during its June meeting, the Fed heard evidence that the market could be overvalued by as much as one-fifth, and Stockton's presentation to Greenspan and the FOMC cited evidence other than cable shows that the housing market was overheated.
"[R]eports of cooling in the housing markets seem to me to be more frequent and more widespread than was the case six months ago," Stockton said. "As we noted in yesterday's Board briefing, a variety of indicators of housing activity have turned down in recent months. Household attitudes toward home buying have dropped sharply; builder ratings of new home sales have deteriorated; the index of mortgage applications for home purchase has fallen off; and the inventory of unsold homes has moved up. Taken in isolation, none of these measures has an especially reliable statistical relationship to housing activity. But taken together, they could be indicating that we are at the front edge of some cooling in these markets."
Dean Baker, an economist who had spotted the housing bubble long before the Discovery Channel did, said that the wrong people have lost their jobs as a result of the Fed policy's failure. "It's amazing that it somehow never occurred to him/her that house prices would actually fall," he said in response to the "Flip That House" comment. "They should be fired for not recognizing this possibility and its implication."
Stockton is still at the Federal Reserve, where he serves as the division director for research and statistics. He did not return a request for comment.
HuffPost readers: If you find anything else noteworthy in the newly released transcripts, email ryan@huffingtonpost.com, indicating the month of the meeting.