Monday, April 16, 2012

The Federal Reserve

David Warsh blogs on the FED and Benjamin Bernanke's recent 4 part lecture series.

Eventually we’ll have the Black Box: the record of what policy makers of the Federal Reserve Board were saying to each other as the crisis deepened in 2008, in the course of fourteen tense meetings during the year, six of them unscheduled. The Federal Open Market Committee releases transcripts of its meetings five years after the fact.

But September 2013 is a long time to wait for a clearer view of the crisis and its aftermath.

So last week Fed chairman Ben Bernanke took another step in constructing a history of events, delivering the first of four lectures to a class of undergraduates at George Washington University. All the details, including transcripts of the first two lectures, are here.


Tyler Cowens writes of the shadow banking system

I RECENTLY asked a group of colleagues — and myself — to identify the single most important development to emerge from America’s financial crisis. Most of us had a common answer: The age of the bank run has returned.


Since the end of World War II, economists have generally thought that runs on banks were dead, at least as a phenomenon in advanced nations. In the United States, for example, bank deposits are insured by the Federal Deposit Insurance Corporation, and, as a last resort, the Federal Reserve can back deposits by printing money.

The new complication is that bank deposits are no longer the dominant form of modern short-term finance. The modern bank run means a rush to withdraw from money market funds, the disappearance of reliable collateral for overnight loans between banks or the sudden pulling of short-term credit to a troubled financial institution. But these new versions are in some ways still similar to the old: both reflect the desire to pull money out of an endeavor — and to be the first out the door. And both can set off a crash.

These newer forms occur in the so-called shadow banking system, involving short-term financial credit not guaranteed by the deposit insurance umbrella.

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