so extremely far did the big banks stretch their resources that, by 1992, the United States faced "an almost unprecedented situation with many of its largest banks operating on - or conceivably, over - the edge of insolvency" (Barth, 1992; p. xxi). The significant improvement of individual banks and the whole industry since 1992 was in large part a result of the dramatic decline in interest rates and the rise in bond prices until early 1994. The Fed's new cycle of high interest rates in 1994 virtually reversed that preceding decline in interest rates; some institutions no doubt suffered losses as bond prices declined in that process. The lesson that emerges from these episodes of the 1980s and 1990s is that the Federal Reserve and other regulators have failed to prevent the problems of banks and other financial institutions from snowballing into systemic proportions. Given the huge social costs that the United States has suffered from both Federal Reserve monetary and regulatory policy, reining in central bank independence is long overdue. Notes: 1 See Appendix Table B-6 from the Economic Report of the President, 1994. 2 See Appendix Tables B-40 and B-52 from the Economic Report of the President, 1994. 3 Economic Report of the President, 1994. 4 The Federal Reserve raised the Federal funds rate target on February 4, March 22, and April 18 (by 1/4 percentage point each time); May 17, August 16 (by 1/2 percentage point each time); November 15, 1994 (by 3/4 percentage point); and February 1, 1995 (by 1/2 percentage point each time), for a cumulative increase from 3.0 to 6.0 percent. It raised the discount rate by 1/2 percentage point on May 17 and August 16, 1994, by 3/4 percentage point on November 15, 1994, and by 1/2 percentage point on February 1, 1995, for a total increase from 3.0 percent to 5.25 percent. 5 See, for example, business and press criticism of Chairman Greenspan and Governor Wayne Angel in Newsweek, June 28, 19...
