The 2008 financial crisis was caused by a ridiculous real-estate bubble, supported by incredibly sloppy mortgage collateralized bond ratings and overleveraged banks. Hellen Keller could have seen it coming.
“A great part of the problem with a panic is that it creates a liquidity crisis, like in the movie, It’s a Wonderful Life.....When all the banks need to liquidate a substantial part of their assets all at once, there is no market for the assets.”
That’s exactly right. And that’s what was happening from 1930-1933.
The members of the 1930’s Fed couldn’t come to an agreement on what they should do so they did nothing. You basically had no Fed.
They should have purchased illiquid assets from banks under pressure to give them cash in order to survive bank runs. This could have interrupted the domino effect of “disintermediation” and cascading bank failures.
It’s easy enough to see in hindsight. Not enough of the member banks thought it was Fed’s proper job back then. Toss in the absence of an FDIC to protect small depositors and you had the recipe for disaster. A tough lesson to learn from.