1. Federal regulators said the exodus of deposits left WaMu "with insufficient liquidity to meet its obligations." As a result, WaMu was in "an unsafe and unsound condition to transact business," according to the OTS

2. Functions of Money Medium of Exchange Medium of Exchange Allows us to avoid problems with barterAllows us to avoid problems with barter “coincidence of want”“coincidence of want” Unit of Account Unit of Account It is the yard stick that we use to measure valueIt is the yard stick that we use to measure value Allows us to measure relative worth between goods, services, and resourcesAllows us to measure relative worth between goods, services, and resources Remember GDPRemember GDP Store of value Store of value Allows a storage of your efforts to be used laterAllows a storage of your efforts to be used later Helps when times are badHelps when times are bad

3. Giant Stones of Yap “Rai Stones”

4. 10’x1.5’ and 8,800lbs

5. Different values based on history

6. David Dean O’Keefe (1871) and Rai Stone inflation

7. Components of the Money Supply M1 ~ $1375 Billion (2006) M1 ~ $1375 Billion (2006) Currency is coins and paper money in the hands of the publicCurrency is coins and paper money in the hands of the public “token money” must be worth less than its face value otherwise it becomes more valuable as a commodity than a currency “token money” must be worth less than its face value otherwise it becomes more valuable as a commodity than a currency Checkable deposits—Checks provide security, and convenience of writing specific amountsCheckable deposits—Checks provide security, and convenience of writing specific amounts Travelers checksTravelers checks Cash held by the Federal Reserve or banks are not included due to double countingCash held by the Federal Reserve or banks are not included due to double counting

8. Components of the Money Supply (cont.) M2 ~ $6758 Billion (2006) M2 ~ $6758 Billion (2006) Includes all of M1 plus…Includes all of M1 plus… “Near monies”“Near monies” Savings depositsSavings deposits Money markets—deposits are used to buy various interest-bearing securities (A.K.A. bonds)Money markets—deposits are used to buy various interest-bearing securities (A.K.A. bonds) “Small time deposits” (A.K.A. CDs) less than $100,000“Small time deposits” (A.K.A. CDs) less than $100,000

9. Components of the Money Supply (cont.) What’s this MZM stuff? Ignore it. What’s this MZM stuff? Ignore it. M3 M3 Includes M1, M2, and…Includes M1, M2, and… MMMF for institutionsMMMF for institutions Time deposits over $100,000Time deposits over $100,000 Stock of money vs. money supply Stock of money vs. money supply M1 is the money supplyM1 is the money supply All other components together (M3) make up the stock of moneyAll other components together (M3) make up the stock of money

10. The Federal Reserve (central bank) Organization Organization Board of Governors—7 members appointed by the president and confirmed by the Senate for staggered, 14 year termsBoard of Governors—7 members appointed by the president and confirmed by the Senate for staggered, 14 year terms 12 Federal Reserve Banks—provide specific services for their geographical regions12 Federal Reserve Banks—provide specific services for their geographical regions Quasi-Public Banks—member banks must buy shares in their district bank, but decisions are made by the BoardQuasi-Public Banks—member banks must buy shares in their district bank, but decisions are made by the Board

11. The Federal Reserve (cont.) FOMC—Federal Open Market Committee FOMC—Federal Open Market Committee Made up of the Board, President of the New York Federal Reserve Bank, and 4 other presidents from the other reserve banksMade up of the Board, President of the New York Federal Reserve Bank, and 4 other presidents from the other reserve banks Their purpose is to control the money supply through the purchase and sale of government securitiesTheir purpose is to control the money supply through the purchase and sale of government securities Independence from government and private firms Independence from government and private firms

12. Major “Fed” functions Issuing currency Issuing currency Setting reserve requirements and holding reserves Setting reserve requirements and holding reserves Lending money to banks Lending money to banks Check clearing Check clearing Fiscal agent for the federal government (the governments bank) Fiscal agent for the federal government (the governments bank) Supervising banks—Regulations Supervising banks—Regulations Manipulating the money supply Manipulating the money supply

13. Money Facts Denominations Denominations Currently--$1, $2, $5, $10, $20, $50 and $100Currently--$1, $2, $5, $10, $20, $50 and $100 Historically the Treasury has printed-- $500, $1,000, $5,000, and $10,000Historically the Treasury has printed-- $500, $1,000, $5,000, and $10,000 Branches; look on a dollar bill Branches; look on a dollar bill Fines for destroying currency Fines for destroying currency