[ExI] banks and crash

[Lee Corbin]

Damien replies for Barbara

> Barbara Lamar replies:
>
> ===========================
> Dear Dr. Papaioannou,
>
> You wrote:
>
> <<But what lead to the great depression rather than
> an ordinary recession was the inaction of government and the central
> bank after the crash, allowing banks to fail and the money supply to
> contract, because using fiscal and monetary policy to correct it was
> anti-free market.>>

Actually, Stathis is correct---one of the overriding direct
causes of the great depression was that the government
allowed the money supply to contract horribly. (See Milton
Friedman's view's on the subject.)

> ...you need to brush up United States history.

This lofty tone impedes polite discussion here. Damien, I do wish
that you would make my views on this matter of list etiquette
known to Barbara.

> The U.S. Federal Reserve Bank was created in 1913.

That's right. Yet another step towards eventual disaster. But it
should be noted that under the *existing* federal regulation---
already exceedingly damaging to the economy---J. P. Morgan
and his friends were already acting just like the Fed was. He
and his pals bailed out a lot of failing banks in 1907. What
happened six years later was merely a formalization.

>Years later, Wilson (who, as president, signed the Federal Reserve Act) said,
>
>  "I am a most unhappy man. I have unwittingly ruined my country.

Thanks for this great quote! I had no idea that Wilson realized
what he had helped to do. But I doubt that he realized that the
best policy was to return to the pre-1855 near uninvolvement
of the government. (Though even by then, a certain number of
panics, such as that of 1837 had been provoked by government
action.)

> A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, 
> therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most 
> completely controlled and dominated Governments in the civilized world."

Ah, the good old days, when the government was yet to get involved
in the housing market and numerous other evils.

> <http://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System>http://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System
>
> I do not have time right now to write at greater length, but please at least read the history of the Federal Reserve Bank before 
> you make statements about the operation of "free" financial markets in the 1920's.

This is correct in my view, but it's unacceptable to speak
down to others in this fashion if we want civilized discourse
to remain possible. What if Stathis were merely to reply and
suggest that you have no understanding and don't know what
you're talking about? Can we please keep to *content*?

Lee

> Your comment indicates a basic lack of understanding on your part of the effect of money and credit on an economy.
>
> Regards,
>
> Barbara Lamar