Re: ECON: The Fed's Y2K Recession of 2001

Date: Wed Apr 04 2001 - 22:19:48 MDT

In a message dated 4/4/01 6:23:14 PM, writes:

>Free market banks would see immediate losses (in reserves
>or profits) for failures to act or bad actions.

No; not immediate at all. It typically takes years to recognize a bad loan.
Because of this, banks don't "count" profits right away either (really, they
don't get the profit till the loans is paid off anyway). There's a huge lag
on feedback.

Partly due to this, and partly due to psychology, banks have a nasty "herd
mentality". If you look at banking, on a gold standard, prior to central
you still see wild volatility. It isn't immediately obvious whether
or relatively apolitical central banking will generate the "better" result.

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