“Careful and pathbreaking research by Milton Friedman showed that the fault lay with the Federal Reserve system’s mistaken monetary policy.”
Well he and Anna Schwartz said it was the Fed’s failure to act, a paralysis made worse because their leader died on the eve of the Depression and they couldn’t decide what to do. So they stood pat as thousands of banks failed with a resulting collapse of the money supply.
One third of American banks failed 1930-33 and one third of the money supply simply evaporated. Depositors were wiped out too because we had no FDIC at that time; Friedman called the creation of the FDIC the most important legislation to come out of the Depression.
Bernanke was a student of Friedman and Schwartz’s study of “The Great Contraction” and was worried that the collapse of the housing bubble could take the banking system down with it, in a replay of the 1930s. TARP and some other policies were intended to keep banks from going bankrupt as mortgage paper defaulted.
>> Bernanke was a student of Friedman and Schwartz’s study of “The Great Contraction” and was worried that the collapse of the housing bubble could take the banking system down with it, in a replay of the 1930s. TARP and some other policies were intended to keep banks from going bankrupt as mortgage paper defaulted <<
Indeed. And in spite of all the unthinking and downright stupid vitriol aimed at Bernanke by partisans both left and right, I think history will judge him well. He was a serious and dedicated man who did mostly the right things, especially in light of the substantial limitations under which he had to operate.