Wed Lecture: The Fed and Stabilizing Financial Mark
Can a Lender-of-Last-Resort Stabilize Financial Markets? Lessons from the Founding of the Fed

Eric Hughson

Don and Lorraine Freeberg Professor of Finance and Economics, and Director of the Financial Economics Institute, Robert Day School of Economics and Finance, Claremont McKenna College The US Economy is hitting home -- not only "the home" that may have been lost to foreclosure in the last year, but the metaphoric home of our daily lives. The traditional assurances of pundits about the long term behavior of the markets are no longer convincing as Americans worry about the viability of their retirement and begin to invoke the year 1929. With the espoused ideals of the free market having failed housing and credit, there has been a turn back to government, a turn that might be ironically described as socialism to save capitalism. Eric Hughson, professor at CMC, along with his research partners, CMC Professor Marc D. Weidenmier and HMC Professor Asaf Bernstein, have looked at the founding of the Federal Reserve as a historical experiment to provide some insight into whether a lender-of-last-resort can stabilize financial markets. What they discovered might surprise: the introduction of a lender-of-last-resort, in the period following the Aldrich-Vreeland Act of 1908 and the Federal Reserve Act of 1914, dramatically reduced financial market volatility in the United States. Professor Hughson will discuss the historical lessons in the context of today's market volatility.

Founders Room of Honnold/Mudd Library at 4:15 PM, October 29th