The Great Depression, Part Ten/B

Treasury Secretary Andrew Mellon felt that the bad banks should be allowed to go under, and that the strong banks would and should survive (Darwin is NOT dead, it’s the survival of the fittest! All of this sounds "good," to an extent, let the bad banks go under, but... keep reading). The thing was, there was a great deal of debt carried by banks on mortgage and business loans, in particular. Also, many folks had their life savings in banks; if a bank went under, it would prove a disaster for many, remember, there was NO deposit insurance back then. Hoover believed almost totally the opposite of Mellon’s “sink or swim” philosophy. He wanted to take some kind of action to shore up the nation’s banks, but he struggled with what exactly should be done. He resisted the idea of using the government to force the banks, or businesses in general, from doing anything. Hoover preferred “voluntary cooperation.” He tried using the stronger banks to voluntarily contribute to a fund to help bolster weaker banks, but the program was a miserable failure, as most banks didn’t want to contribute to the fund, including Mellon’s bank, if I remember right (Surprise! Surprise!). Finally, Hoover came up with the Reconstruction Finance Corporation, or RFC. This was a government program that would make loans to banks and other entities. Hoover, while seldom given any credit by his critics, took the Federal government into the world of “private business.” It was a step that helped to change America, and temporarily, it helped steady the banking system.

"The Election of 1932" brought an end to twelve consecutive years of Republican occupancy of the White House. Franklin Roosevelt won by a wide margin in both the popular vote and in the more important Electoral College. Interestingly, Roosevelt was able to attack his former friend Hoover from both flanks during the campaign; attacking him from the right for running large Federal deficits, but then attacking him from the left for not using the government more to combat the Depression.

In those times, as I indicated in an earlier part, a president was elected in early November, but did not take office until March 4 of the following year; leaving a four month period of a “lame duck presidency” for the outgoing chief executive. During this period of late 1932 and early 1933 banks began to fail at an alarming rate, which only caused “a run on the existing banks,” which only caused more failures. It was a “vicious cycle.” Banks do many things, but mainly they take in money in deposits and then loan that money out at such and such an interest rate to make money. With the economy so depressed, not only were banks not making many loans, they weren’t getting paid for loans they had already made. Hoover’s RFC helped to stem the shakiness in the banking system at first, but it couldn’t totally prop up a system that was so filled with weaknesses.* The government loans were able to tide the banks over, much like the used car dealer mentioned in Part 10/A was able to stay in business by selling a vehicle and then paying off the previous vehicle he had sold, but eventually things caught up to the car dealer AND to the banks.

The reasons for the banking crisis and the run on the banks, which really triggered the major problems, are another contentious issue in history. Reasons given are colored by people’s political ideas. Hoover, whose bruised ego was still smarting from his re-election loss, blamed the crisis on President-elect Roosevelt’s vague campaign ideas about the economy, feeling that Roosevelt needed to state forthwith what he intended to do. Again Hoover’s political naiveté came into play. He wanted Roosevelt to, in essence, join forces with him to reassure the country about the banking system and thus curtail the run on the banks. Roosevelt, perhaps the best political president we’ve ever had, was definitely NOT inclined to lay his prestige on the line before he took office, nor did he want to be associated in any way with Hoover’s now very unpopular and failed policies.

So, you have a few thousand dollars in the bank in 1932/33 (again, quite a sum in those times). With deflation, your money is actually becoming stronger in terms of actual purchasing power). Suddenly you hear on the radio that such and such a bank has been stormed by depositors wanting to withdraw their money. The news is filled with new stories of banks being overwhelmed by withdrawals. What do you do? Sit and wait, and potentially lose your life savings? Hell no, you head to your bank and want to withdraw all of your money, figuring your mattress is safer than the current state of the banking industry. With so many depositors withdrawing their money, a slew of banks went down, with many others down for the count. The whole country seemed about to implode, but then in stepped a new president.

* I originally did this article about a year before the financial crisis of 2008, thus I wrote that Hoover's RFC "couldn't totally prop up a (banking) system so filled with weaknesses." As the crisis of 2008 came to a head, the Bush administration, along with Federal Reserve Chairman Ben Bernanke, a Republican, decided to ask Congress for hundreds of billions of dollars to shore up the banking system. The money and some strategic mergers helped to eventually stabilize the system, but even then, a number of banks failed. Even with this recent event, however, many people, often, but not always, conservative Republicans (there really aren't many other kinds of Republicans these days), did not learn the lessons of the Great Depression. They were against any intervention into the banking system, and they wanted the weak banks to go under; thus letting things happen naturally, at least by their definition. Some folks just don't learn! In my fantasies, I'd like to put all of these "let things be natural" and "don't do something, stand there," people all together somewhere, where they have to live as people did 5000, 10,000, or 50,000 years ago, which seems to be want they want. Then if they got sick or injured, they couldn't call a doctor or go to a pharmacy for medications, they'd either survive or kick the bucket. I wonder how many would be screaming to get back to the reality of 2012, with all its shortcomings, and say, "Get me to a doctor?"

WORD HISTORY:
Branch-The ultimate origins of this word are uncertain, but it "may" go back to Gaulish^ "vranca," which seems to have had the notion of "angle;" thus the idea of "branch," "an offshoot that forms an angle." If true, where Celtic got the word is uncertain, but some believe Latin borrowed the word from Gaulish as "branca," which initially meant "paw" (offshoot from a leg), and also "footprint" (an impression made by a 'paw'). Later it took on the meaning "claw." Old French, a Latin-based language, inherited the word as "branche," which by then had taken on the meaning "bough, limb of a tree." English borrowed the word in the 1200s as "braunch." As had already happened in its previous history, the word has "branched out" in meaning, to include more than just trees; for instance, in reference to river systems and circulatory systems, as well as family history (branches of a family tree). The verb form developed from the noun in the 1300s.   
 
^ Gaulish was a Celtic dialect or language in western Europe, primarily in what is now modern France and part of Belgium. Celtic is an Indo European group of languages, thus related to English further down the family tree. Celtic dialects/languages, once widespread in Europe, are now much diminished, but include Welsh, Breton (in Brittany, France), and Irish Gaelic.