walter bagehot lombard street a description of the money market

The adaptation that I emphasize in the book involves reconceptualizing the role of the central bank for a world where the capital market, not bank lending, is the primary source of credit for the real economy.

The pressing task now is to learn the lessons of the crisis, which means adapting our mental frameworks to the contours of the real world as revealed in the crisis. Section 13(3)for “unusual and exigent circumstances”. Remembering that failure, it did better this time around, taking advantage of the huge loophole provided by As a consequence the Fed was in effect intellectually disarmed in the face of the crisis that became the Great Depression. This original conceptualization was politically attractive but unfortunately it was not well-suited to the actual organization of the American credit system. nothing to do with long term capital markets and nothing to do with Wall Street. I traced the origin of that framework to the very origins of the Fed, when popular opposition to the establishment of a central bank was overcome by public (indeed legislated) conceptualization of the Fed as an institution dedicated to provision of short term credit to the Main Street economy, i.e. One reason for the delay, so I argued, was that the Fed (and everyone else too) was operating with a mental framework inherited from the past, and unsuited for the actual conditions they were facing. Even so, in the global financial crisis that began August 2007, dealer of last resort intervention came only after the collapse of Lehman and AIG in September 2008, and only after the Fed had tried its best to stem the tide with more standard, albeit very aggressive, lender of last resort intervention.

In my own book I argued, analogously and also from history and institutions, that in the rather different conditions of the American financial system as developed throughout the 20th century, the Fed not only must act as dealer of last resort, but also that in fact it had so acted, supporting liquidity in the capital market during financial crisis. Bagehot argued, from history and the institutional structure of the British financial system, that the Bank of England not only must act as lender of last resort, but also that in fact it had so acted, lending freely at a high rate during financial crisis. Lombard Street: A Description of the London Money Market.

In the aftermath of the Lehman-AIG collapse of September 2008, I set myself the challenge to write a kind of update of Bagehot’s famous 1873

Walter bagehot lombard street a description of the money market