That's where the Fed is supposed to step in - and has: After Philadelphia's giant Penn Central railroad failed in 1970, the Fed pumped billions into banks that financed other suddenly shaky corporations such as Lockheed and Chrysler. When the stock market fell in 1987 on Ronald Reagan's watch, the Fed backed bank loans to traders, allowing the markets to recover before business panicked. Nawrocki attributes the Fed's 2008 stumble to "a conservative ideology" that feared to seize or save key institutions until it was too late. If we kill the Fed, what happens in the next panic? Last time we had a central bank, its advocates were conservative, hard-money businessmen, and its opponents were subprime borrowers and lenders who convinced President Jackson the bank was holding back the nation. Now it's the reverse. To critics like Ron Paul, the Fed is an inflationary money-printing machine hijacked by free-spending, debt-addicted bureaucrats; only free money markets using a tangible currency (like gold) brings sustainable growth and prosperity. But power abhors a vacuum. Kill the Fed, and behind it stands the Treasury, beholden to the president; and Congress, scared of voter retaliation if it attempts something painful, like balancing the budget. The Fed is subject to public pressure - the president appoints its chairman, local business owners and bankers and nonprofit bosses man the boards that appoint many of its members - but it is insulated from direct political dictates. By ending the Fed, Paul and other Fed-killers, instead of strengthening free markets, would put more financial power right in the hands of our politicians. Do we trust them?
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2010 Media Report Villanova School of Business