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The best criticism of the Fed is that it too often does its job poorly, not that it was ill-founded or that it is unnecessary.

A key reason for the creation of the Fed is that without a central bank, the essential function of providing emergency liquidity and acting as lender of last resort must fall to private bankers. Specifically, in the panic of 1907, that role fell to J. P. Morgan and a small group of bankers aligned with him.

Although Morgan was much pilloried during his lifetime, in that instance, he and his allies acted with regard for the public interest and stabilized the US financial system in a moment of crisis. Yet a systemic vulnerability had become clear and made a potent argument for the creation of a central bank.

Notably, in 1932 and 1933, due to a lack of political direction and a lapse in the absence of a new appointed chairman, the Fed failed to perform its duty as lender of last resort. This led to a catastrophic lack of liquidity and the wave of bank failures that aggravated and defined the Great Depression.

It is sometimes argued that there would be no need for emergency liquidity and a systemic lender of last resort if fractional reserve banking were abolished. Unfortunately, that is not the case, because mismatches in maturity between assets and liabilities may arise, or normally sound assets may lose their value in a major financial crisis.

Ultimately, as long as an economy relies on lending, there will be a need for standby emergency liquidity and a lender of last resort. The problem is that such a role may weaken the discipline of free markets in punishing bad lending practices and improvident bankers.

The financial crisis of 2008 stemmed directly from an excess of lending to the US housing sector. The Fed had the power to act against the bad lending practices but did not do so. While the Fed performed well enough during the crisis, their prior errors should not be excused, just as we would not excuse failure to remedy an obvious fire hazard simply because the resulting fire was suppressed just short of total destruction.

A key reason for the creation of the Fed is that without a central bank, the essential function of providing emergency liquidity and acting as lender of last resort must fall to private bankers.

The mere fact that bankers may require "emergency liquidity" indicates a serious flaw in the banking system that should be fixed, not papered-over with a government agency to save their sorry butts by cheapening the currency.

Any other business goes bankrupt. Why do we so revere the precious banks? I still believe the motives for the Fed's founding were ill-considered and devious.