TURNING T ZIO CH AP TER ONE SUPPLY R DEMAND n the U S the economy relies on many things People buy products They pay for services Bankers take care of people s money Stock traders invest in the markets And the federal government over everyone Or at least it s supposed to The Federal Reserve was created to be the nation s central bank in 1913 Its job was to stabilize banks around the country by controlling the overall money supply The Fed was not meant to look after private companies The govern ment figured other financial firms could look after themselves In time though financial EEEEB companies grew larger and more powerful than expected Before the Fed was established bank II hy ing panics were common Traditional banks did not necessarily keep enough money on hand to be able to give it back to their cus tomers They invested in the stock market U S Federal Reserve Washington D C The Fed issues new bills and coins each year to replace the damaged and worn money it has pulled out of
and other places If a bank lost too much money in the stock market customers became nervous TTTTTT They wanted to pull their money out of the bank But if the bank couldn t pay back all the money it went out of business One bank s failure often sparked others Panic ensued Such a disastrous panic occurred in 1907 that Congress started studying the banking system the following year Led by senator Nelson Aldrich a group of bankers eventually came up with a plan for a central bank Congress then used this plan to create the Federal Reserve Although the Fed is the central bank it is itself made up of 12 banks These banks are in Boston New York Philadel phia Cleveland Richmond Atlanta Chicago POINTING OUT THE PANIC OF 1907 One hundred years before the Great Recession an other serious financial crisis took place The U S was already experiencing a period of recession in 1907 To make matters worse some businessmen schemed to manipulate the stock price of shares in a copper com pay They hoped to make a lot of money and gas control over the copper stock Instead the shares lost significant value and caused related banks and firms to go bankrupt Famed New York banker James Pier pont Morgan worked with other company presidents to keep Wall Street afloat by pooling their own money During the Panic of 1893 people gathered in large crowds outside banks anxious to withdraw their money before the bank
