Why Are There So Many Banking Crises?

I'll admit that I've only read the first few pages of this new book so far but already it's answered one of the questions I've had about the ECB and Fed's actions.

The banks and so on are being allowed to bring those CDO notes, those pools of dodgy mortgages, and use them as collateral to borrow cash from the central banks. This has led some to splutter: but we know that these bonds aren't worth what the banks say they are, so why are we doing this? Isn't this just a subsidy to the fat cats?

...the concept of lender of last resort (LLR), which was elaborated in the 19 th century by Thornton (1802) and Bagehot (1873). The essential point of the "classical" doctrine associated with Bagehot asserts that the LLR role is to lend to "solvent but illiquid" banks under certain conditions. More precisely, the LLR should lend freely against good collateral, valued at precrisis levels, and at a penalty rate.

Now it may well be that those CDOs et al are not good collateral: but at precrisis valuations they are.

Thus the Fed and the ECB are doing exactly what they are supposed to be doing. Indeed, what we've assumed they would do for a century and a half (not that either of them is actually that old as yet).

I'll have to carry on reading, eh?