Moral hazard or creative destruction?

Michael Roberts Blog

As I write, US regional banks stock and bond prices are diving.  And a major international Swiss bank, Credit Suisse, is close to bankruptcy.  A financial crisis not seen since the global financial crash of 2008 appears to be unfolding.  What will be the response of the monetary and financial authorities?

Back in 1928, the then US treasury secretary and banker Andrew Mellon pushed for higher interest rates in order to control inflation and credit fuelled stock market speculation. At his bequest, the Federal Reserve Board began raising interest rates and in August 1929 the Fed banged up the rate to a new high. Just two months later in October 1929, theNew York Stock Exchangesuffered the worst crash in its history in what was called “Black Tuesday“. History repeats.

In 1929 Mellon was undeterred.  He advised the then president Hoover to “liquidate labor, liquidate stocks…

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