Why is the Federal Reserve hiding information about the banks? - continued
Why is the Federal Reserve hiding information about banks from us? Here's some information that may help us to understand. We'll start with a comment from our last post about the 1931 audit of banks by the Treasury Department.
At that time, the Treasury (which was responsible for auditing banks at the time), decided not to dig too deep in its audits. They instructed their auditors to be lenient. You can find a telegram that instructs the auditors to be "lenient" at.
Here's why we should be concerned. International Risk Analytics reports that at least 1,000 banks will be going under that will either fail or be "merged" with other banks, costing anywhere from $300 billion to $800 billion - a staggering number.
Let's compare 1933 with today. In 1933, there were around 17,000 banks in total in the U.S. So when 4,000 banks failed, that represented around 24% of banks. Today, in 2009, we have between 7,000 and 8,000 banks. So 1,000 failed banks would represent around 14%. Not as bad, but its seems like lot, doesn't it?
In 1931, withholding or "massaging" the facts didn't help much. There were ultimately runs on banks just as soon as the truth about some of the banks came out.
Given previous experience, why is the Federal Reserve hiding information about banks now? If we're heading for any sort of crisis, why keep it a secret?
I'm not saying these bank failures will precipitate a crisis. But I'd rather discuss the matter openly, learn the facts and be prepared for whatever might be coming. At least I know that's my personal preference.
This may not be a perfect comparison, but imagine a weather service that hides the facts about a possible hurricane striking your area because he feels people might panic? What good would such a weather service be? You could guess that after one such incident, no one would trust their forecasts.
While I've heard the arguments about not wanting to panic the public, if bad things may happen, I, for one, would want to know that. So as for why the Federal Reserve hiding information about the banks, can you blame people for feeling that 1) there may be bad things that could create panic and 2) those bad things may possibly be really bad?
At that time, the Treasury (which was responsible for auditing banks at the time), decided not to dig too deep in its audits. They instructed their auditors to be lenient. You can find a telegram that instructs the auditors to be "lenient" at.
(http://www.voxeu.org/index.php?q=node/3703)
What was accomplished then? Not much it seems. By 1933, 4,000 banks had failed. The government closed all banks to deal with the chaos that ensued.Here's why we should be concerned. International Risk Analytics reports that at least 1,000 banks will be going under that will either fail or be "merged" with other banks, costing anywhere from $300 billion to $800 billion - a staggering number.
Let's compare 1933 with today. In 1933, there were around 17,000 banks in total in the U.S. So when 4,000 banks failed, that represented around 24% of banks. Today, in 2009, we have between 7,000 and 8,000 banks. So 1,000 failed banks would represent around 14%. Not as bad, but its seems like lot, doesn't it?
In 1931, withholding or "massaging" the facts didn't help much. There were ultimately runs on banks just as soon as the truth about some of the banks came out.
Given previous experience, why is the Federal Reserve hiding information about banks now? If we're heading for any sort of crisis, why keep it a secret?
I'm not saying these bank failures will precipitate a crisis. But I'd rather discuss the matter openly, learn the facts and be prepared for whatever might be coming. At least I know that's my personal preference.
This may not be a perfect comparison, but imagine a weather service that hides the facts about a possible hurricane striking your area because he feels people might panic? What good would such a weather service be? You could guess that after one such incident, no one would trust their forecasts.
While I've heard the arguments about not wanting to panic the public, if bad things may happen, I, for one, would want to know that. So as for why the Federal Reserve hiding information about the banks, can you blame people for feeling that 1) there may be bad things that could create panic and 2) those bad things may possibly be really bad?
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