First, the neat distinction between liquidity and solvency had become meaningless. The Fed in 1931 stuck to the principle that it should only lend to institutions facing a temporary shortage of liquidity and that propping up insolvent banks would be throwing good money after bad.
were the mistakes made by the Fed-especially by its decision, in 19, to allow so many banks to fail. Rather the consensus among economists is what made the Depression great in the U.S. What “lessons of history” are animating his decision-making now?Ĭontrary to popular opinion, the Great Depression was not caused by the stock market crash of 1929. Reserve Chairman Ben Bernanke is often described as a student of policy failures during the Great Depression.
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