The Bank of England had accepted the role of maintaining orderly markets and financial stability in a crisis. Why? Because the prices of financial assets are too important to be left to the market when it is panicked and when letting prices reach market levels will mean unemployment for hundreds of thousands in 1825, or tens of millions today.
Ben Bernanke's Public Private Investment Partnerships—the vehicles for purchasing banks’ toxic assets—are a natural development, even a Burkean development, of policy that has been pursued for 184 years now.
(Emphasis supplied.) Sounds to me like the Bank of England needed a regulatory receivership mechanism and deposit insurance. Sure would be great if the United States had things like that. Oh by the way, how did Henry Thornton's bank turn out?
And the bank of Pole, Thornton? Alas, Henry Thornton was irrationally exuberant when he swore that the bank was solvent. The bank was eventually closed. The partners lost their capital shares. The Bank of England had to wait years before getting its emergency loan back. (They did not care much; they were too big to fail, and Lord Liverpool thought they had done well.)
Hell of a story though . . .
The problem with DeLong's little morality tale, which is intended to make us feel better about the Geithner Plan, is that the Geithner Plan is not likely to work without giving away a few trillion more to the banks.
And to compare the role of national government today with the English government in 1825 is ludicrous. Of course the Bank of England did well given the tools available to it. In essence, Bernanke did the same thing last fall when he opened the discount window at virtually zero interest rates to the banks.
Today, in theory at least, we have an entire regulatory set up to deal with insolvent banks. What happened to it?
Pretty weak stuff from DeLong.
Speaking for me only