1929 All Over Again

Banks, apparently, are failing.

Again.

Banks failed in the wake of the Great Depression — before there were any regulations to prevent it, before there was any such thing as insuring deposits, before the government had any significant role in commercial finance.

It was the Wild West out there. Since then, America has implemented quite a lot of guardrails to keep these sorts of calamities from happening.

Yet, here we are. For the third time. (You may recall we had some similar shenanigans in 2008).

What’s different now? No one on the news is thinking that the collapse of a couple of banks in Silicon Valley measures up to what happened in the 1930’s. The big comparison is to 2008, when banks freewheeled it in the wake of deregulation and played fast and loose with unsuspecting people’s money. Many banks were deemed too big to fail, and so fail they did not.

The 1930’s were completely different. Why?

The fundamental decision the government made in the wake of the Great Depression was that it had to get involved in the private sector. Banks and businesses that held a bunch of the American and world economies in their hands could not be left to their own devices to decide what was best.

(This was a marked difference from the late 19th and early 20th century when presidents looked to financiers like JP Morgan to use their might to bail out the country. How times have changed).

As soon as government steps back from oversight, titans of business go back to doing what they were always meant to do: make money. Let’s not fault them for it. It’s what they do. They have no wider concerns about the country or the citizenry or any of that. The bottom line is the bottom line.

It’s 2023, and the big banks out west that failed won’t be allowed to fail. All deposits will be guaranteed, because economies are interconnected. You can’t blow a giant hole in one part of it and expect all the other parts to go on like there isn’t an giant hole of some sort in proximity.

Which, I suspect, the folks running the big banks into the ground knew. If things got tough, they’d get bailed out. That was the big lesson they learned in 2008. It’s why people with money started seriously buying politicians. Once you own the guy who’s going to bail you out when you screw up, screwing up is the new success.

Ordinary Americans have been protected from bank failures since the government started insuring bank deposits. The limit per account is now $250,000. So most of us never have to worry about not getting our money.

But the big boys do. So they invested heavily in our political system to make sure they had their protections buttoned up as well.

The economy won’t collapse. America won’t skid into a recession. The national debt will go up, and the small group of individuals responsible (and it’s always a small group of individuals these days) will stay rich and stay free from any kind of consequence.

Here’s another thing that was different in 1933: People caused the run on the banks — individual farmers and mechanics and workers fearing their little nest eggs wouldn’t be safe took it all out and stuffed it under their mattresses. Which made the prospect of a nationwide bank failure real.

Instead of a government-funded bailout, President Franklin Roosevelt went on the radio, explained the situation in simple terms, told the people of the United States why pulling their money out of the banks was bad for the country, and asked them to put it all back when the banks reopened Monday morning.

And they did. Fifteen billion dollars’ worth. Which is the equivalent of three hundred forty seven billion dollars today.

In 1933, a President asked the American people to do what was right to help their country.

In 2023, a small group of people bailed out rich people and their companies with government money.

And they didn’t ask us first.