Insanity, like criminality, usually starts small and expands with time. In the Fed’s case, the process began in the 1990s with a series of (in retrospect) relatively minor problems running from Mexico’s currency crisis thorough Russia’s bond default, the Asian Contagion financial crisis, the Long Term Capital Management collapse and finally the Y2K computer bug.

With the exception of Y2K – which turned out to be a total non-event – these mini-crises were threats primarily to the big banks that had unwisely lent money to entities that then flushed it away. But instead of recognizing that this kind of non-fatal failure is crucial to the proper functioning of a market economy, providing as it does a set of object lessons for everyone else on what not to do, the Fed chose to protect the big banks from the consequences of their mistakes. It cut interest rates dramatically and/or acquiesced in federal bailouts that converted well-deserved big-bank losses into major profits.

The banks concluded from this that any level of risk is okay because they’ll keep the proceeds without having to worry about the associated risks.

At this point – let’s say late 1999 — the Fed is corrupt rather than crazy. But the world created by its corruption was about to push it into full-on delusion.

The amount of credit flowing into the system in the late 1990s converted the tech stock bull market of 1996 into the dot-com bubble of 1999, which burst spectacularly in 2000, causing a deep, chaotic recession.

Instead of letting this (also well-deserved) crisis run its course, the Fed again protected Wall Street by cutting interest rates to unprecedentedly-low levels, something that rational observers warned would cause another bubble of some kind. Sure enough, the resulting housing bubble expanded to epic proportions before popping in 2007, with results that most readers remember clearly.

The Fed then completely lost it, setting short-term interest rates at literally zero and buying trillions of dollars of bonds to push long-term rates down to record low levels. This lit a rocket under asset prices, enriching the banks and their wealthy clients while saddling the rest of society with debilitating student loan, car, house and credit card debt. Again – to observers outside the Keynesian bubble delusion – this was not sane behavior. But in the context of an overriding compulsion to save Wall Street at any cost, it was sold – and bought – as somehow heroic rather than pathological.