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J.P. Morgan. The Fed was created as a reaction to the panic of 1907, when Morgan went over the books of each failing bank and said "Nope, let it fail" or "Okay,

J.P. Morgan. The Fed was created as a reaction to the panic of 1907, when Morgan went over the books of each failing bank and said "Nope, let it fail" or "Okay, the trouble stops here. Let's give them cash" depending on whether they were solvent. Much like Bernanke & Paulson have had to do with Bear Stearns and Lehman Brothers. Congress felt that this was too much power to concentrate in the hands of a private individual, and so they created the Fed as a quasi-government organization responsible to Congress. Isn't it much better to have the bankers be responsible for bailing out their own mess, rather than have the taxpayers do it? How is the creation of the Fed a positive development in this case? And yes, the Fed isn't the only way inflation happens. Good old fashioned printing money to cover the cost of war works too, and it's just as awful.

nostrademons 18y ago
I'm speaking mostly of what is, not what should be. I agree that it would be better if bankers cleaned up after themselves and owned up to their own mistakes. However, when you're dealing with something as fundamental to the economy as banking, it's almost always to someone's advantage to bail them out (or worse, to use someone else's money to bail them out). If the Fed didn't exist, one of the other banks would do it, and probably reap huge profits in the process, right up until it miscalculates and loses all its depositors' money too. Basically, I don't think it's the Fed that's the problem. It's humans.
- bokonist 18y ago
  As long as banks that miscalculate go out of business, over time, the survivors will have much more sound financial practices. Also, without the Fed, there is no single point of failure. This makes it much easier to diversify away risks. Further, note that a lot of the bad banking practices of the late 1800's were not the result of a free market, but of federal and state banking laws. The Fed and other government intervention is almost certainly a proximate cause of the problem. Perhaps, though, the ultimate problem of bad government is an inevitable part of the human condition.

nostrademons 18y ago

I'm speaking mostly of what is, not what should be. I agree that it would be better if bankers cleaned up after themselves and owned up to their own mistakes. However, when you're dealing with something as fundamental to the economy as banking, it's almost always to someone's advantage to bail them out (or worse, to use someone else's money to bail them out). If the Fed didn't exist, one of the other banks would do it, and probably reap huge profits in the process, right up until it miscalculates and loses all its depositors' money too. Basically, I don't think it's the Fed that's the problem. It's humans.

bokonist 18y ago
As long as banks that miscalculate go out of business, over time, the survivors will have much more sound financial practices. Also, without the Fed, there is no single point of failure. This makes it much easier to diversify away risks. Further, note that a lot of the bad banking practices of the late 1800's were not the result of a free market, but of federal and state banking laws. The Fed and other government intervention is almost certainly a proximate cause of the problem. Perhaps, though, the ultimate problem of bad government is an inevitable part of the human condition.