Lender of Last Resort

Billionaire investor Warren Buffet published a letter praising President George W. Bush’s leadership in saving the nation’s largest banks and preventing an “economic meltdown” at the height of the financial crisis.

In stark contrast, criticizing Bush’s leadership in the same financial crisis triggered by displacement from the September 11 terrorist attacks as a “government bailout,” Mike Huckabee is characteristic of politicians who seem to know little about the Federal Reserve System, founded in 1913 by Congress to serve as the American lender of last resort.

With the leadership void endorsed by Huckabee, recovery after a financial crisis is slower and more painful, according to MIT economist Charles Kindleberger.

A lender of last resort does shorten the business depression that follows financial crisis.  The evidence turns mainly on 1720, 1873, 1882 in France, 1890, 1921, and 1929.  In none of these was a lender of last resort effectively present.  The depressions that followed them were much longer and deeper than others.  Those of the 1870s and 1930s were both known as “Great Depressions.”

At such a critical time for our nation, Americans can ill-afford any wild-eyed theories wanting to eliminate the Federal Reserve’s role as lender of last resort.  Needed is leadership with knowledge of America’s economic history to effect safety and happiness, such as that praised by a certain billionaire.

Lawmakers in Congress – considering further action related to the liquidity trap caused by the failure of Barack Obama’s monetary policy, in addition to a mandate for the central bank to operate with a single-minded effort to promote price stability – should judge it as necessary and expedient to let the Federal Reserve remain America’s lender of last resort.


Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises, Revised Edition (New York: Basic Books, 1989).


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