You are incorrect. The Fed was created in 1913, 16 years before the Great Depression. It fact it is often argued that the Fed was responsible for the Depression.

The Fed will be powerless this time, because it's not a credit crisis, it's a trust crisis. Banks have stopped lending because they don't trust anyone, not even themselves. Not even the Fed, which has demonstrated a troubling lack of independence when it bent to pressure from Wall Street and slashed rates repeatedly.


Regarding P/Es: wait for the write-downs. What we have witnessed so far is only the beginning. Losses on 2003+ mortgages may reach 50% on average. The apparently low prices are not because the current valuation is overly pessimistic, but because earnings are overstated.

Citi and AIG are trading at a 9.0 P/E (worse than GM, which is arguably a basket case) for a reason. Citi is virtually bankrupt already (SIV = Enron way of concealing losses). AIG and the insurance/pension sector as a whole have hundreds of billions of worthless CDOs in their books.

In fact retail banks, insurance companies and pension funds were among the biggest buyers of junior CDO tranches early this year, although it had become apparent that the horse had already left the stable. They desperately needed the promised return, and willingly ignored the risk.