TRIED AND TRUE POLICIES.

TRIED AND TRUE POLICIES. I do feel somewhat boastful that I was right when I said on March 18, 2008, some six months before the Lehman bankruptcy, that what the central bank had to do in a liquidity crisis was to “…to stand ready to purchase broad ranges of securities…” However, all I was doing was applying long established principles. I referred to the year 1873 to emphasize how far back “the accepted doctrine of central bank behavior during a domestic crisis of liquidity” went.

A surprising thing about the financial crisis was that things which had worked in the past were not tried. I am thinking of the reluctant use of Keynesian fiscal policy and the failure to use government “bad banks” to clean up bad mortgages.

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