Seeing Like the Fed: Culture, Cognition, and Framing in the Failure to Anticipate the Financial Crisis of 2008

2017 ◽  
Vol 82 (5) ◽  
pp. 879-909 ◽  
Author(s):  
Neil Fligstein ◽  
Jonah Stuart Brundage ◽  
Michael Schultz
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Recent Work ◽  
Open Market ◽  
Financial Instruments ◽  
Federal Open Market Committee ◽  
Macroeconomic Theory ◽  
Making Sense ◽  
Financial Crisis Of 2008 ◽  
Positive Light

One of the puzzles about the financial crisis of 2008 is why regulators, particularly the Federal Open Market Committee (FOMC), were so slow to recognize the impending collapse of the financial system and its broader consequences for the economy. We use theory from the literature on culture, cognition, and framing to explain this puzzle. Consistent with recent work on “positive asymmetry,” we show how the FOMC generally interpreted discomforting facts in a positive light, marginalizing and normalizing anomalous information. We argue that all frames limit what can be understood, but the content of frames matters for how facts are identified and explained. We provide evidence that the Federal Reserve’s primary frame for making sense of the economy was macroeconomic theory. The content of macroeconomics made it difficult for the FOMC to connect events into a narrative reflecting the links between foreclosures in the housing market, the financial instruments used to package the mortgages into securities, and the threats to the larger economy. We conclude with implications for the sociological literatures on framing and cognition and for decision-making in future crises.

scholarly journals The Effect of FOMC Votes on Financial Markets

2019 ◽  
Vol 101 (5) ◽  
pp. 921-932
Author(s):  
Carlos Madeira ◽  
João Madeira
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Open Market ◽  
Federal Open Market Committee ◽  
2008 Financial Crisis ◽  
Treasury Securities ◽  
Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

scholarly journals Þekkingarmiðað lýðræði – þegar þekking lýðsins ræður

2016 ◽  
Vol 12 (2) ◽  
pp. 491
Author(s):  
Jón Ólafsson
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Empirical Evidence ◽  
Common Core ◽  
Democratic Governance ◽  
Public Consultation ◽  
Epistemic Democracy ◽  
Public Discussion ◽  
Financial Crisis Of 2008

During the democratic awakening in Iceland during and after the financial crisis of 2008 it was evident that different groups based their demands for more or deeper democracy on different conceptions of democracy. Yet their demands had a common core: more democracy meant greater public influence on policy- and decision-making. Thus public discussion insisted on a conception of democracy according to which public consultation is a necessary part of democratic governance. This paper discusses different kinds of consultation depending on the particular demands in each case with particular emphasis on epistemic democracy. I argue that even though it can hardly be said that epistemic democracy is based on much empirical evidence yet, its approach is the most promising way to think about future democratic.

Voting in Central Banks: Theory versus Stylized Facts

2016 ◽  
Vol 16 (4) ◽  
Author(s):  
Roman Horváth ◽  
Kateřina Šmídková ◽  
Jan Zápal
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Private Information ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Informational Influence ◽  
Monetary Policy Committee ◽  
The Status ◽  
Theory Versus ◽  
Policy Committee

Abstract The paper examines the ability of several alternative group decision-making models to generate proposing, voting and decision patterns matching those observed in the Bank of England’s Monetary Policy Committee and the US Federal Reserve’s Federal Open Market Committee. A decision-making procedure, common to all the models, is to vote between adoption of the chairman’s proposal and retention of the status-quo policy, with heterogeneous votes generated by private information of the models’ monetary policy committee members. The members can additionally express reservations regarding the final committee decision. The three alternative models differ in the degree of informational influence between the chairman and the remaining members. We find that a “supermajoritarian” model, in which the chairman proposes a policy she knows would be accepted by a supermajority of the committee members, combined with allowance for reservations, closely replicates real-world decision-making patterns. The model predicts no rejections of chairman’s proposals, low but non-trivial dissent, even during meetings where the chairman proposes no change in policy, and predictive power of the voting record of the whole committee regarding future monetary policy changes.

The ‘Even Keel’ Decisions of the Federal Open Market Committee

1970 ◽  
Vol 26 (6) ◽  
pp. 105-117 ◽  
Author(s):  
William P. Yohe ◽  
Louis C. Gasper
Keyword(s):  
Open Market ◽  
Federal Open Market Committee

Making Sense of Mill

Dialogue ◽  
1996 ◽  
Vol 35 (4) ◽  
pp. 791-804 ◽  
Author(s):  
Daniel M. Weinstock
Keyword(s):  
Political Philosophy ◽  
Recent Work ◽  
Practical Philosophy ◽  
Making Sense ◽  
Political Debates ◽  
Growing Body ◽  
Philosophical Debates

Wendy Donner's The Liberal Self: John Stuart Mill's Moral and Political Philosophy is an important and thought-provoking addition to the growing body of literature seeking to rescue Mill's practical philosophy from the rather lowly place it occupied in the estimation of many philosophers earlier this century, and to present him as a philosopher whose views form a coherent, systematic whole that can still contribute significantly to numerous moral and political debates. The book proposes an interpretation of the whole of Mill's practical philosophy, and attempts to reveal how aspects of Mill's thought, hitherto considered incompatible, actually mutually support one another. At the same time, Donner sets many of Mill's positions in the context of contemporary moral and political philosophical debates, and finds that on a number of important issues, his thought stands up rather well against more recent work.

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