The Federal Reserve Bank of San Francisco (the Fed) has compiled resources on the web for the purpose of informing the general public about our current financial situation.

The information is broken up into three themes:

  • what happened to create the crisis;
  • what the Federal Reserve Bank currently doing to mitigate the situation; and
  • what the financial future look like.

The site includes graphics explaining the vicious cycle that lead to the market crash, the Fed’s responsibilities and actions as the lender of last resort, which are leading to more virtuous cycles that are going to lead the nation out of financially troubled waters.

first tuesday take: The Fed provides very clear and eye-catching explanations for the financial crisis. It is important for brokers and their agents to understand the background of the financial crisis and where we are headed, in order to interact properly with the current and future markets.

But the report failed to mention the ineffective role the Fed played in preventing the massive asset bubble, failing to intervene as they fretted and watched it develop. The Fed is very forthcoming when discussing their virtuous actions taken to pull the market out of a financial crisis, but this branch of the Federal Reserve omits the Fed’s total failure to prevent the current financial crisis by leaning against the virtuous cycle’s excessively bloated bubble.

But that “leaning action” would have been viewed as the Fed pulling the punch bowl, draining all the speculative excitement out of the real estate market and the stocks and bonds market. The Fed failed to make the right decision while it was politically unpopular.

Now the Fed is engaged in the cleanup of a mess that it never should have allowed, all to the applause of politicians and the institutions that benefited most from the very excesses which the Fed should have cut off before the bubble burst.  So now we have to deal with the bad hangover – and the applause is annoying.

The Fed will be more virtuous during the current upturn in economic activity and not permit a “next time,” right? [For more information regarding the leaning action the Fed should have taken, see the October 2009 first tuesday article, Preventing the next real estate bubble.]

Re: “Crisis and Response,” from The Federal Reserve Bank of San Francisco