He began by giving an historical account of the similarities between the financial crisis of 1907 and the crisis of 2007-2008. He noted that in 1907 JP Morgan acted as a “lender of last resort” by loaning millions (in 1907!) to about-to-fail trust companies and banks, with those institutions assets and investments pledged as collateral. Thus on the back of the very wealthy few America was saved for the day. Following and because of those events, the Federal Reserve was founded. Dr. Bernanke then noted that in '07-'08 the Fed acted as the “lender of last resort” to keep the trust companies from failing just as Morgan and Rockefeller did a hundred years earlier. Only there’s a problem, which Ben was sure eluded the audience - the money used 100 years ago was real cash from the pockets of real people. In '07-08 the money used was manufactured out of thin air by the Fed.
. . . and has since racked up perhaps the worst record of economic predictions in the past 100 years.
Here was Bernanke in 2008, before Lehman collapsed and all hell broke loose:
[quote]Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very
substantial part of our banking system
[/quote]
http://www.cnbc.com/id/23390252
[quote]The Federal Reserve is not currently forecasting a recession,
[/quote]
http://www.sfgate.com/business/article/Fed-chief-to-slash-rates-as-needed-to-avoid-3231862.php
And these are the purported “experts” lol
Not to mention the Fed’s role in exacerbating the downturn of 1929 by allowing the supply of money to decrease by one-third between 1929-1933. Economist Milton Friedman won the Nobel Prize for his work in that regard.
http://en.wikipedia.org/wiki/A_Monetary_History_of_the_United_States
Something isn’t adding up here. Friedman was anti-Keynesian. The Fed not pumping cash into the situation was an anti-Keynesian response. To not pump in cash favored short term pain for long term better recovery. Not politically popular by any stretch but more sound financially. So why would Friedman criticize?
Here, from the wikipedia article:
[quote]Friedman and Schwartz identified four main policy mistakes made by the Federal Reserve that led to a sharp and undesirable decline in the money supply:[3]
In the spring of 1928, the Federal Reserve began to tighten its monetary policy (resulting in rising interest rates) and continued that same policy until the stock market crash of October 1929. This caused the economy to enter a recession in mid-1929 and triggered the stock market crash a few months later.
In the fall of 1931, it raised interest rates to defend the dollar in response to speculative attacks, ignoring the difficulties this caused to domestic commercial banks.
After lowering interest rates early in 1932 with positive results, it raised interest rates again in late 1932, causing a further collapse in the U.S. economy.
The Federal Reserve was also to be blamed for a pattern of ongoing neglect of problems in the U.S. banking sector throughout the early 1930s. It failed to create a stable domestic banking environment by supporting the domestic banks and acting as lender of last resort to domestic banks during banking panics.
[/quote]
Friedman was a monetarist and frequent critic of the Fed. However, given that the Fed had control of the money supply, he (and Anna Schwartz) simply revealed how the Fed bungled that responsibility during the Great Depression and in fact significantly contributed to the sharp contractions in GDP (or GNP, as it was called back then).