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Monday, November 17, 2008

Ben Bernanke and Lessons from the Great Depression

I realize that there are many of you out there that are enraged that the Fed is not disclosing who is borrowing from the TARP program, how much or what the goverment is paying for the assets. And you have a right to be mad. But let me also remind you of a little story from the Great Depression. The Reconstruction Finance Corporation (RFC) was a government agency that was in the bailout business back in the early 1930s. When they first started their deliberations, the names of the banks that borrowed from the RFC were not published. But beginning in August 1932, any bank that borrowed from the RFC had its name published and all the particulars were splashed across the media. Once this happened, borrowing from the RFC dried up as banks were reluctant to borrow as it was a sign of weakness. It snowballed until the ultimate crisis happened...first in the banking collapse in Michigan in February 1932 and then in the ultimate meltdown in March 1933. Like banks that have to go to the secondary discount lending facility today, you show up there and you might as well have a sign that says "soon to fail" hung around your neck. I suspect Ben Bernanke remembers these lessons from the Great Depression. He deserves the benefit of the doubt to do it this way. By the way, I have a one hour interview with Chairman Bernanke in my second book on the Great Depression seen in the upper right. You could call Edward Elgar at 413-584-5551 and order the book. Imagine that.

Here is a very good presentation of the issues involved in this matter (thanks again to W. Douglas McMillin)


derekp said...

``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

Also Dan's bond fund (symbol LSBDX) is down about 27% ytd and he is looking for somebody to blame

derekp said...

I own Dr Parker's first book and it is awesome. I have used it several times over the past several months as a reference during client meetings.

The good Dr was even nice enough to autograph the book for me and all I had to do was ask!

Randall Parker said...

Book two is on sale too. I'd be happy to sign that one also.

ArmChairEconomist said...

Doesn't look to be a problem:
TARP Borrowers

notice BB&T=3.134 Billion (illion with a B)