In the spring of 2008, at the depths of the Great Recession, when the chairman of the Federal Reserve Bank, Ben Bernanke, spoke to the Federal Reserve Bank of Atlanta’s Financial Markets Conference, he invoked as his charm for warding off fiscal doom a man whose name most of his hearers had never encountered and a book which was 135 years old. “Walter Bagehot’s Lombard Street, published in 1873,” Bernanke announced, “remains one of the classic treatments of the role of the central bank in the management of financial crises.” That role, he explained, required the Fed to come galloping to the bailout of banks that were too big to fail. “[T]he basic logic in Bagehot’s prescription for crisis management” was that “[a] central bank may be able to eliminate, or at least attenuate, adverse outcomes by making cash loans secured by borrowers’ illiquid but sound assets.”

Bernanke had been reading Bagehot since his days as a Princeton University economics professor, and it was from Bagehot that he embraced the idea that a central bank should be “the lender of last resort” who keeps troubled financial institutions afloat. It was with Bagehot in mind that Bernanke and the Fed moved to save Bear Stearns and smooth its absorption by JPMorgan, and then produced a $180

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