Against the Rules: The Big Short Companion Lender of Last Resort
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Nov 4, 2025 Emi Nakamura, a UC Berkeley macroeconomist, dives deep into the Federal Reserve's critical role during the 2008 financial crisis. She explains the Fed's origins in response to banking crises and discusses how its decisions shaped economic policies. Nakamura highlights the complexities of monetary intervention, including the controversial bailouts and the evolving nature of money from gold to modern currency. She also warns about the potential risks to the Fed's independence and public trust in the aftermath of such interventions.
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Why The Fed Was Born
- The Federal Reserve was created in 1913 to stop recurring banking crises and provide a more elastic currency.
- Central banking solved inefficiencies of private-note systems and reduced seasonal spikes in interest rates.
Gold Standard Had Flexible Cover
- The gold standard fixed paper money to gold but allowed varying gold cover ratios over time.
- That flexibility let central banks expand currency without immediate gold-price pressure.
Independence Anchors Monetary Policy
- The 1951 Fed-Treasury Accord established modern central bank independence to balance financing needs and inflation control.
- Independence helps avoid short-term political pressures that raise long-term inflation expectations.
