The Fed Made the Mess Worse

If you’re curious why the Federal Reserve did everything it could to bail out the banking system, the reason is due to an event that happened 80 years ago this weekend.

Yesterday was the 80th anniversary of the collapse of the Bank of United States. The bank’s odd-sounding name was an attempt to fool depositors into thinking the bank was backed by the government.

According to Milton Friedman, the bank’s failure was the critical date of the Depression. At the time, it was the largest bank failure in U.S. history. This is when the Fed’s lack of response turned a regular recession into a massive depression.

According to Friedman, BOUS was a sound bank. Even when it was forced to liquidate, it paid off depositors 83.5 cents on the dollar.

Friedman discussed the failure of the Bank of United States and its repercussions in Free to Choose (see pages 80 to 82).

Posted by on December 12th, 2010 at 4:16 pm


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