Walter Bagehot — Lombard Street (1873)

The classic guide to banking panics, and the origin of the central banker’s rule: lend freely, at a high rate, against good collateral.

Walter Bagehot, editor of The Economist, wrote this description of the London money market after a string of banking panics. He explained how credit works, why it can suddenly vanish, and what the Bank of England should do when it does.

Central banks still invoke “Bagehot’s rule” in every financial crisis, including 2008.

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