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View Full Version : CNN: Famous Fed Flubs




emazur
03-16-2011, 03:08 PM
http://money.cnn.com/galleries/2011/news/1103/gallery.federal_reserve_flubs/index.html
When Chicago's largest bank Continental Illinois went under in 1984, the Federal Reserve rushed in to save the day, issuing Continental $3.6 billion in loans. Volcker was at the Fed's helm.

Testifying before the Senate, he later defended the move, saying bailouts are "the most basic function of the Federal Reserve. It was why it was founded."

TheNcredibleEgg
03-16-2011, 04:00 PM
The U.S. economy was already in a recession in 1929, when newly appointed New York Fed President George Harrison (not the guitarist from the Beatles) decided he wanted to curb an emerging stock bubble. He convinced the Fed to raise interest rates, instead of letting stocks run their course.
Two months later, the stock market crashed, starting the Great Depression.

The rise in interest rates had affected the economy, like sticking a needle in a balloon rather than letting the air out slowly. The Fed had choked off economic growth, collapsing the entire financial system.

To make matters worse, the Fed raised interest rates again following the crash, and failed to increase the money supply to combat deflation. People started stashing their cash under mattresses instead of in banks, turning a bad recession into a full-blown crisis.



I don't suppose CNN would understand - but this one (#2) was not a flub, per se. The Fed being involved in setting interest rates (as opposed to the market) was a flub, yes. But that was not the cause of the great depression.

Really, CNN missed the biggest flub of all - the 1913 orginal flub.