Brian Romanchuk — Why Lender-Of-Last-Resort Operations Are Inevitable

Summary:
Lender-of-last-resort operations by central banks (or "bailouts of the financial system") are deservedly unpopular across the political spectrum. Malcontents have argued that risky lending ought to be handled by markets, and that deposits should be fully backed by reserves or Treasury bills. Unfortunately, the believers in these theories never bother to look at the economics of short-term lending. The money markets have the structure that they have for a reason, and they only will function if there is a lender-of-last-resort that is able to step in and prop the system up. Any attempts to make the system bailout proof would have far-reaching consequences into the structure of the economy.... Bond Economics Why Lender-Of-Last-Resort Operations Are InevitableBrian Romanchuk

Topics:
Mike Norman considers the following as important: central banking, lender of last resort

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