STOCK MARKET WATCH -- Monday, 23 December 2013

[Demeter]

38. A Locked Door, A Secret Meeting And The Birth Of The Fed

http://www.npr.org/blogs/money/2013/12/23/256326325/a-locked-door-a-secret-meeting-and-the-birth-of-the-fed?ft=1&f=1001



... Senator Nelson Aldrich, chairman of the Senate finance committee...knew there was something America could do so that it would no longer have to rely on one guy to end panics. The U.S. could create a central bank... Countries in Europe already had central banks. And, during panics, the central banks basically did what J.P. Morgan did in the U.S.: Act as lenders of last resort for healthy banks. When depositors were lined up out the door yelling for their money, banks that were basically sound could borrow from the central bank.

But just consider that name: central bank. Throughout American history, both of those words — "central" and "bank" — had been deeply unpopular. The thought of a bunch of rich bankers in New York controlling a powerful central bank did not inspire confidence. Still, Aldrich realized he needed bankers' help to draw up a plan for a central bank. So he came up with a plan to gather in secret. He told a handful of New York bankers to come on a given night, one by one, to a train station in New Jersey. There they would find a private rail car hitched to the back of a southbound train. To conceal their identities, Aldrich told the bankers to come dressed as duck hunters and to address each other only by first name.

The train headed south, and the bankers got off in Georgia. They spent the next week holed up in a private club at a place called Jekyll Island. (Apparently, the name didn't sound as sketchy then as it does today.) At Jekyll Island, Aldrich and the bankers came up with a plan. They knew many Americans thought a central bank could become too powerful, too influential in the economy. So they came up with a classic, American workaround: The decided the U.S. should create lots of little central banks, scattered all around the country. The plan they came up with still had a long way to go. It got shot down the first time in Congress. The plan for a central bank was debated, changed significantly, renamed. But the basic idea held up. And on December 23rd, 1913 President Woodrow Wilson signed the Federal Reserve Act into law.

Creating the Fed didn't solve the nation's economic problems. IMAGINE THAT, MARKETEERS! In fact, a few decades after the Fed was created, its policies made the Great Depression worse. And the Fed has changed significantly over the course of a century...