The Wall Street Journal has a fascinating interview with the president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, the lone dissenter from the Fed's "QE2" decision. He says, "When all these very important decisions were made in 2003 to bring interest rates to 1%, it was because unemployment was 6.5% and thought to be too high. As a consequence of that — not immediately but in time — we now have 9.6% unemployment."
Someone else sent me a link to a Paul Krugman New York Times column from August 2, 2002:
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
I think there's plenty of blame to go around for the financial crisis and the 9.6% unemployment. It wasn't just the Federal Reserve's fault. But it's a different story line than some of the others commonly offered, such as the idea that the financial crisis was caused by some combination of Republican deregulation and Wall Street greed.