or 2009
Governor R.A. Young of Fed. Reserve Bd. warns banks to be careful
about the increasing amount of loans against securities. About the crash last
fall, says: “there is food for serious thought in the fact that, under our
excellent banking system ... we nevertheless came to the brink of a collapse,
had to resort to heroic action to prevent a panic, and were not able to avoid
... severe liquidation and what appears to be a business depression. Is this
unavoidable? Is it necessary for this country to go through periods of reckless
exuberance, accompanied by enormous credit expansion and fantastic levels of
money rates that profoundly disturb the financial structure not only here but
all over the world?” The cost of these episodes is paid in unemployment and
worldwide depression. Reminds banks that security loans are safe only if a
liquid market exists for the security; large scale sales can cause a drop in
value, “and there is no telling when such a drop may terminate and what
catastrophe may follow ...” Calls on banks not to assume Fed will always be able
to help them, since its resources are “not inexhaustible.”
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