Its latest financial intervention is a new twist on an old story
A review of the history shows both the typical and the unique in the case of Silicon Valley Bank. There is ample, albeit imperfect, precedent for the Fed’s actions. Yet they continue a worrying trend of ever-broader interventions and, consequently, distortions to the financial system. This gives rise to questions about whether, in the long run, the Fed’s pursuit of stability harms the economy.
In the decades after the Great Depression, the Fed seemed to have put an end to bank runs. But starting in the 1970s, when inflation soared and growth softened, the financial system came under stress. On each occasion officials expanded their playbook. In 1970 they snuffed out trouble that originated outside the banking system. In 1974 they auctioned off a failed bank. In 1984 they guaranteed uninsured deposits. In 1987 they pumped liquidity into the banking system after a stockmarket crash.
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