The financial crisis in 2008 that Wu Kebo mentioned swept the whole world in another time and space!
The global financial crisis that occurred in 2008 had a great impact on the world economy.
Since the 1980s, financial liberalization has diversified financial markets and global ties across borders.
In 1999, the Financial Services Modernization Act replaced the Grass-Steagall Act of 1933, which separated retail business from investment banking.
The risks taken by investment banks can be transferred more to retail banks.
During the 2008 crisis, European banks were affected by U.S. subprime mortgages, and some banks also borrowed money from the U.S. wholesale currency market.
This means that European banks’ loans are less dependent on deposits because they can get cheap funds just like the United States.
When North Rock Bank collapsed in 2007, the first bank run in the UK in more than a century.
The UK is closely related to the US financial markets, and during the 2008 financial crisis, the UK also faced the threat of a systemic banking collapse.
So, have central banks taken enough action to avoid repeating the 1929 crash?
Have central banks learned from the Great Depression and the experiences proposed by Milton Friedman?
Like Friedman, Ben Bernanke is also a scholar who studies the Great Depression.
Therefore, when the global financial crisis broke out in 2008, he happened to be the chairman of the Federal Reserve, which prevented the same mistake from happening again.
Like the Great Depression, the recent financial crisis has seen a surge in asset prices before it happened, but this time it is mainly concentrated in the real estate market, not the stock market.
According to the Case-Schiller repeat sales price index, U.S. housing prices doubled between 1999 and 2007.
This is largely due to a significant expansion of housing credit.
Fannie Mae and Freddie Mae, two quasi-government companies, strongly support government policies, that is, by effectively receiving goods and collateral, reducing the proportion of first villages and increasing the housing price-to-income ratio, so that more low-income people can buy houses with tight purchases.
It is true that this financial crisis is different from the Great Depression in several important aspects, so the lessons learned in the 1930s may not be copied in full, but comparing the two is still helpful.
The Great Depression analyzed by Friedman and Schwartz in "A History of the United States Monetary (1867-1960)" is essentially a current asset crisis.
Banks facing a deposit run need a strong, strong lender of last resort to avoid liquidity shortages.
At this point, the Fed has not succeeded.
The biggest problem in the global financial crisis is solvency, not liquidity.
Those complex and opaque securities are difficult to price, and the value, quality and risk of the series of assets behind them are difficult to determine.
Therefore, the credit market cannot determine which companies are solvency and which do not.
Naturally, lenders are reluctant to issue loans without determining the creditworthiness of the borrower.
Most of these problems lie in investment banks.
The Fed responded quickly to the crisis.
It has taken measures to cut interest rates significantly and expanded the discount window tool.
Learning from the lessons of the last crisis, TAF has enabled banks to bid anonymously to avoid being seen as a troubled institution.
Editor search policy transparency has always been advocated, but in crisis mode, opacity may be a better choice.
The Fed has also carried out a series of large-scale asset purchases, a process known as quantitative easing.
From November 2008 to June 2010, the Federal Reserve purchased about $175 billion in long-term securities, thus invoking equal amounts of cash into the economy.
In November 2010, with the economic turmoil, the Federal Reserve purchased $600 billion in long-term Treasury bonds in the second round of quantitative easing.
Finally, the third round of quantitative easing was launched in September 2012, when the Federal Reserve announced that it would purchase $40 billion in offset bonds per month indefinitely.
This is called unlimited quantitative easing by investors.
The final quantitative easing program amount increased to $85 billion per month in December of that year, and then gradually decreased to $65 billion per month in June 2013.
By October 2014, three rounds of quantitative easing plans had allowed the Federal Reserve to accumulate 4.
$5 trillion in assets.
As a result, the money supply M2, which suffered a heavy blow during the Great Depression, rose rapidly during the global financial crisis after the Fed's balance sheet increased significantly.
At the same time, it also avoided the recurrence of bank panic and bank runs from 1930 to 1933.
Will Friedman favor quantitative easing and other policies used to deal with the 2008 crisis?
He will undoubtedly express his support in purchasing government bonds such as government bonds to lower long-term interest rates and inject liquidity into the banking system.
However, Friedman may view the purchase of mortgage-backed securities as a bailout of non-performing assets.
His prescription for the Great Depression was to allow the Fed to provide liquidity, not bailouts.
The Fed's response to the crisis also includes directly rescuing certain financial institutions that are important to the entire system and cannot go bankrupt.
Investment bank Bear Stearns has particularly high exposure to the U.S. mortgage market.
In 2008, with the strong support of the Federal Reserve, JPMorgan took action to save Bear Stearn.
This is determined by the risks that Bear Stearns has. If Bear Stearns goes bankrupt, it may lead to the collapse of the entire banking system.
In July 2008, the U.S. Treasury Department bailed out government-backed companies Fannie Mae and Freddie Mae, which were at the heart of the crisis, and partially nationalized them.
However, a few months later, Lehman Brothers were allowed to go bankrupt.
The consequence is that the US mortgage market crisis has turned into a global financial crisis.
Bernanke later argued in a 2012 speech that the Fed had no legal basis for bailouts because Lehman Brothers were insolvent and the systemic risk was smaller than Bear Stearns.
However, the next day, ASI received a bailout because the Fed was worried that if it was allowed to go bankrupt, it would have an impact on the credit default swap market.
During the global financial crisis, the Federal Reserve directly provided loans to specific markets and businesses with liquidity demand.
The practice recommended by Friedman during the Great Depression was to inject a large amount of general liquidity into economic activities, so that the solvency problem could be solved by itself.
He might argue that the Fed's targeted intervention weakened its independence and credibility and involved himself in specific cases.
However, the world in 2008 was different from 1929.
Now, some participants in the financial field are indeed big and undefeated, and in a sense, they may drag down the entire system.
The global financial crisis that occurred in 2008 had a great impact on the world economy.
Since the 1980s, financial liberalization has diversified financial markets and global ties across borders.
In 1999, the Financial Services Modernization Act replaced the Grass-Steagall Act of 1933, which separated retail business from investment banking.
The risks taken by investment banks can be transferred more to retail banks.
During the 2008 crisis, European banks were affected by U.S. subprime mortgages, and some banks also borrowed money from the U.S. wholesale currency market.
This means that European banks’ loans are less dependent on deposits because they can get cheap funds just like the United States.
When North Rock Bank collapsed in 2007, the first bank run in the UK in more than a century.
The UK is closely related to the US financial markets, and during the 2008 financial crisis, the UK also faced the threat of a systemic banking collapse.
So, have central banks taken enough action to avoid repeating the 1929 crash?
Have central banks learned from the Great Depression and the experiences proposed by Milton Friedman?
Like Friedman, Ben Bernanke is also a scholar who studies the Great Depression.
Therefore, when the global financial crisis broke out in 2008, he happened to be the chairman of the Federal Reserve, which prevented the same mistake from happening again.
Like the Great Depression, the recent financial crisis has seen a surge in asset prices before it happened, but this time it is mainly concentrated in the real estate market, not the stock market.
According to the Case-Schiller repeat sales price index, U.S. housing prices doubled between 1999 and 2007.
This is largely due to a significant expansion of housing credit.
Fannie Mae and Freddie Mae, two quasi-government companies, strongly support government policies, that is, by effectively receiving goods and collateral, reducing the proportion of first villages and increasing the housing price-to-income ratio, so that more low-income people can buy houses with tight purchases.
It is true that this financial crisis is different from the Great Depression in several important aspects, so the lessons learned in the 1930s may not be copied in full, but comparing the two is still helpful.
The Great Depression analyzed by Friedman and Schwartz in "A History of the United States Monetary (1867-1960)" is essentially a current asset crisis.
Banks facing a deposit run need a strong, strong lender of last resort to avoid liquidity shortages.
At this point, the Fed has not succeeded.
The biggest problem in the global financial crisis is solvency, not liquidity.
Those complex and opaque securities are difficult to price, and the value, quality and risk of the series of assets behind them are difficult to determine.
Therefore, the credit market cannot determine which companies are solvency and which do not.
Naturally, lenders are reluctant to issue loans without determining the creditworthiness of the borrower.
Most of these problems lie in investment banks.
The Fed responded quickly to the crisis.
It has taken measures to cut interest rates significantly and expanded the discount window tool.
Learning from the lessons of the last crisis, TAF has enabled banks to bid anonymously to avoid being seen as a troubled institution.
Editor search policy transparency has always been advocated, but in crisis mode, opacity may be a better choice.
The Fed has also carried out a series of large-scale asset purchases, a process known as quantitative easing.
From November 2008 to June 2010, the Federal Reserve purchased about $175 billion in long-term securities, thus invoking equal amounts of cash into the economy.
In November 2010, with the economic turmoil, the Federal Reserve purchased $600 billion in long-term Treasury bonds in the second round of quantitative easing.
Finally, the third round of quantitative easing was launched in September 2012, when the Federal Reserve announced that it would purchase $40 billion in offset bonds per month indefinitely.
This is called unlimited quantitative easing by investors.
The final quantitative easing program amount increased to $85 billion per month in December of that year, and then gradually decreased to $65 billion per month in June 2013.
By October 2014, three rounds of quantitative easing plans had allowed the Federal Reserve to accumulate 4.
$5 trillion in assets.
As a result, the money supply M2, which suffered a heavy blow during the Great Depression, rose rapidly during the global financial crisis after the Fed's balance sheet increased significantly.
At the same time, it also avoided the recurrence of bank panic and bank runs from 1930 to 1933.
Will Friedman favor quantitative easing and other policies used to deal with the 2008 crisis?
He will undoubtedly express his support in purchasing government bonds such as government bonds to lower long-term interest rates and inject liquidity into the banking system.
However, Friedman may view the purchase of mortgage-backed securities as a bailout of non-performing assets.
His prescription for the Great Depression was to allow the Fed to provide liquidity, not bailouts.
The Fed's response to the crisis also includes directly rescuing certain financial institutions that are important to the entire system and cannot go bankrupt.
Investment bank Bear Stearns has particularly high exposure to the U.S. mortgage market.
In 2008, with the strong support of the Federal Reserve, JPMorgan took action to save Bear Stearn.
This is determined by the risks that Bear Stearns has. If Bear Stearns goes bankrupt, it may lead to the collapse of the entire banking system.
In July 2008, the U.S. Treasury Department bailed out government-backed companies Fannie Mae and Freddie Mae, which were at the heart of the crisis, and partially nationalized them.
However, a few months later, Lehman Brothers were allowed to go bankrupt.
The consequence is that the US mortgage market crisis has turned into a global financial crisis.
Bernanke later argued in a 2012 speech that the Fed had no legal basis for bailouts because Lehman Brothers were insolvent and the systemic risk was smaller than Bear Stearns.
However, the next day, ASI received a bailout because the Fed was worried that if it was allowed to go bankrupt, it would have an impact on the credit default swap market.
During the global financial crisis, the Federal Reserve directly provided loans to specific markets and businesses with liquidity demand.
The practice recommended by Friedman during the Great Depression was to inject a large amount of general liquidity into economic activities, so that the solvency problem could be solved by itself.
He might argue that the Fed's targeted intervention weakened its independence and credibility and involved himself in specific cases.
However, the world in 2008 was different from 1929.
Now, some participants in the financial field are indeed big and undefeated, and in a sense, they may drag down the entire system.
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