The further we get from 2008, when the American economy flirted with another Great Depression, the more people forget what happened and create stories that satisfy some political, ideological or journalistic urge. Among the biggest losers in this revisionism is the Federal Reserve. Although it helped save the economy from a deeper collapse, it is increasingly portrayed as the epicenter of an unspoken conspiracy to use government money to benefit Wall Street at everyone else's expense.
If this view prevails — and it's common among the tea party, the Occupy Wall Street movement, political figures on both left and right and some members of the media — we may all be losers. Congress created the Fed in 1913 to act as a lender of last resort for the nation's banking system. The legislation stemmed from the Panic of 1907 when the absence of a lender of last resort aggravated a severe slump.
We know what happened when the Fed shunned this role: the Great Depression. From 1929 to 1933, 43 percent of the 24,970 U.S. banks failed or were merged out of existence. Economic historians still argue over why the Fed abdicated its responsibilities, but the consequences were dire. The collapse of money and credit deepened the Depression. Unemployment in the 1930s averaged 14 percent. Criticism that the Fed was too active in 2008 may induce it to be too passive in another crisis.