Friedman and Schwartz (1963), and Friedman (1959, 1969, 1972) conceived of financial instability as a monetary phenomenon--described as faster money expansion due to unchecked credit expansion-- and significantly downplayed real factors. In each financial crisis, banks suspended conversion of deposits into currency, and a wave of bank failures ensued. The analysis of the causes of the Great Depression by Friedman and Schwartz (1963) sheds light on the causes that led to the present financial crisis characterized by meltdown of sub prime loans and the burst of the housing boom. They argued that fierce competition among banks and financial innovation evaded prudential regulations, contributed to over borrowing for speculation in housing and stock markets and a deterioration of the quality of loans. They noted that financial instability of the scale of the Great Depression did not happen prior to the creation of the Federal Reserve System (Fed) in 1913. The founders of the Fed were expecting that financial instability of the 19th and early 20th century would be thwarted or significantly reduced by the creation of a central bank. With regard to the Great Depression, Friedman and Schwartz held the view that the Fed was accountable for two policy errors: it was reluctant to prevent a speculative boom at an early stage and it was not able to move fast enough to avoid massive bank failures and deep depression. Based on a comprehensive study of the US monetary history, they observed that financial stability prevailed only when money supply was increasing at a stable and moderate rate of 2-3 percent. In line with Simons (1948), Friedman strongly rejected discretionary and unpredictable monetary policy and prescribed the rule of setting fixed targets for the growth of monetary aggregates in line with the expansion of economic activity [Maurice Allais (1999) was a strong supporter of fixed rule. In full agreement with Friedman, he proposed a fixed target for money supply, compatible with a long-term inflation at about 2 percent a year].