Wednesday, January 25, 2012

HISTORY: "ON HOOVER'S ATTEMPTS TO RESCUE THE BANKS"

Bloomberg.com has a regular "Echoes" column that covers economic history. The articles are not long, are informative, and provide insight into who we are today. Below I've posted the opening to Phillip Scranton's article "On Hoover's Attempts to Rescue the Banks." If you see similarities to what's happening today you're not alone.

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In 1929, there were nearly 25,000 banks in the U.S. Many European nations had fewer than 100. More than 90 percent of U.S. banks served small towns and rural districts, held state charters and hadn't joined the Federal Reserve System (which was mandatory for nationally chartered banks). Thus they couldn't seek loans from the Fed to support liquidity.

Given that deposits were uninsured, "runs" commenced when rumors circulated that a bank was having difficulty collecting mortgage and loan payments. Accountholders lined up hoping to recover their savings or liquidate their checking accounts. Banks often responded by limiting payouts or requiring, say, 30 days' notice for withdrawals. Fears of being "wiped out" spread and deepened, credit dried up, closures multiplied.

About 800 banks closed their doors in late 1930, and more than 1,500 in 1931 ...

Read the rest here.

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- Mark

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