Any single pundit or hydra-headed editorial board attempting to hold forth on the causes, consequences and solutions for the current financial crisis should tread carefully. Few are qualified to opine about a disaster that effectively blind-sided most of the experts.
Even so, the topic is not without comprehensible lessons, and all of the calamity is great food for thought — especially so in the unlikely event that real food becomes as precious as it did during the Great Depression.
Wise men say this crisis will not drag us down to the depths of the that era, but comparisons between the current market slide and the stock market crash of 1929 are inevitable. The crash was the springboard for the Great Depression, although historians and economists still argue whether it was the cause or just a contributor to the long dive.
One of the great differences between that October in 1929 and October 2008 is the role banks and bankers played then and now.
The Great Depression became real when panicked depositors withdrew their money from banks across the country in waves from 1930-1933. Without deposits, the banks failed. With no one to lend money, the economy stagnated. Businesses died. Unemployment soared.
But before those years of panic, when the crisis was still new and still confined to stock markets, a handful of banks and their bosses took the lead in trying to avert disaster. One day after Black Thursday, Oct. 24, 1929, the heads of Morgan Bank, Chase National Bank and National City Bank started buying blue chip stocks to shore up confidence. The tactic worked briefly. Then came Black Monday and Black Tuesday. In response, William C. Durant, members of the Rockefeller family and other financial giants made a new attempt to restore Wall Street’s shaken faith in the market. Despite their valiant and risky effort, the plan failed to slow the crash.
Today, far from stepping up to contain the crisis, financial giants are said to be the cause. The subprime debacle directly or indirectly led to the collapse of Lehman Brothers, Bear Sterns, the insurer AIG and the federal takeover of Fannie Mae and Freddie Mac. And instead of putting their money into the markets, today’s banking titans have their hands out to the federal government while they restrict credit — making the crisis worse.
We can be thankful today for the Federal Deposit Insurance Corp. which guarantees our deposits and prevents a recurrence of the runs on Main Street banks that really fueled the Great Depression. And we can only hope the financial whizzes who created the complex securities that got us into this mess will somehow — perhaps with the taxpayer’s help — also create a way out.
Conrad Easterday
