The monetary policy that culminated in the current crisis and the failure of the Federal Reserve’s efforts to end the credit freeze in 2008 are critical components of the analysis needed as a backdrop for reform. This working paper argues that the link between excess liquidity, the buildup in...

Belief in the efficient markets hypothesis and the adoption of capital requirements for banks as the macro-prudential tool most compatible with market forces replaced the Federal Reserve's earlier commitment to using the link between open market operations and changes in reserve requirements to...