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Events surrounding the U.S. housing crash in many ways resemble the Great Depression, including strings of failed bailout plans and a reliance on voluntary compliance, policy experts said on Thursday.
A panel of speakers at Bard College's Levy Economics Institute, in Annandale-on-Hudson in upstate New York, offered a series of proposals for grappling with the crisis. Among them was the creation of an institution like the Depression-era's Home Loan Corporation to put a floor under the mortgage market.
"There is some stuff that does have that eerie 1932 feel," said Thomas Ferguson, a professor of political science at the University of Massachusetts, Boston, citing regulators' "infinite confidence in moral suasion."
The Fed has cut interest rates aggressively since the official start of the credit crisis last August, slashing its target for interbank lending by 3 percentage points to 2.25 percent. In addition, it has pumped hundreds of billions of dollars into the banking system and begun accepting shadier assets as collateral in an effort to get financial institutions to begin lending again.
But observers like former Fed Chairman Paul Volcker have said the central bank is pushing the boundaries of its legal authority by giving money to investment banks over which it has no regulatory authority.
Walker Todd, a fellow at the American Institute for Economic Research, said Volcker's skepticism was justified.
"Overnight, without public debate, the Fed gave out half of its balance sheet to the primary dealer community," said Todd. "They have crossed the line."