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Zaid Reply:
January 27th, 2010 at 4:08 am

Hi Tom,

I had a different read on this whole transparency issue. If Bernanke is taking a lesson from the 1930s, one event that made the the whole banking system shut down was the publication of the names of banks that had received loans from the Reconstruction Finance Corporation. That happened in January 1933. In the weeks following the publication, there were many bank runs on the banks that were perceived as being weak by the public. In March, the whole banking system was shut down by Executive Order… and well, the rest is history.

I don’t mean to imply that Bernanke’s worries are warranted. They shouldn’t be if the Fed lends in unlimited quantities to meet withdrawals by the public, but then again, we already know how much he really knows about how the system really operates under a non-convertible floating exchange rate regime.


One Response

  1. I think its important to understand the structure of our current system which allows Fed access (at nonpenalty rates?) to just a few large institutions that are not necessarily based here in the United States.

    “Volcker, however, yielded no ground while fleshing out his ideas. He emphasised in written testimony that he was targeting a small number of US institutions – “maybe four or five” and “perhaps a couple of dozen worldwide” – that generated significant revenue from proprietary trading.

    His goal is to prevent a group that benefits from the ability to borrow directly from the Fed and has its retail deposits guaranteed by the government from gambling in a way that could jeopardise the group itself and the broader system. ”


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