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« Bailing Out Bond Insurers: It's Big, Really Big | Main | System Update »

January 25, 2008




Excellent Blog...The transcripts can be enlightening.


Hey Jeff - Don't go confusing Barry with the facts of how the Fed goes about it's business. You're going to interfere with his flinging off those snappy one-liners and sneering comments on Kudlow.


Maria -

Thank you for joining in with a thoughtful question.

I freely confess to my perspective -- that we should focus on what has happened in the last 20 or 30 years at most. I am not too interested in studies that reach back to the Great Depression. So many things have changed. Just take a look at the frequency and severity of recessions. Both government and corporations are doing better. Government with policy, corporations with inventory and staff. I might also add the stock analysts do not have the rosy tint displayed in 2000.

As to moral hazard, the companies that have made mistakes, and their investors, have suffered major losses. At some point the question is whether the effects to the innocent bystanders are important enough for government to act. We engage in bailouts not to help the guilty, but to avoid systemic problems.

Great question -- deserving of a more complete article.



Maria Josefa

Ooops! Is it possible the Fed didn't do anything during the Crash because the dollar was still pegged to gold? If so, that makes 1971 all the more interesting!

Maria Josefa


I've enjoyed your blog and this is my first post. Not sure if the following request falls within the realm of your expertise, but I thought I'd raise it nonetheless. We hear alot about 'moral hazard' with respect to the Fed and the Financial markets. If I'm not mistaken, the self-reinforcing panic and downward spiral might have been stalled if the Federal Reserve & Washington had taken decisive action in 1929-1932. There was a 'Calvinist Punishment' sentiment that allowed banks, lenders, etc. to crash, grind and die. There are many people today who feel the same. The other side of the argument; why punish the many at the expense of the corrupt? We know that it is extremely rare for white collar crime to get its due. I just heard an interview with Robert Rubin on NPR the other day in which he basically absolves the entire financial industry from any wrongdoing. That really took my breath away. He said in effect, "Every day you got to stay in business and do what it takes". The blogosphere and the media are ripe with accusations in both directions - cut!, don't cut! Question - Could the 1929 after-crash spillover been prevented by the Washington and the Fed taking strong preventive measures? I'm amused that the 'uptick' rule was cited as being a factor to the Crash (baloney). Keep up the good work!, Maria

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