Herbert Hoover-March Toward Reactionary

I've written a good bit about Herbert Hoover, including the recent, "Herbert Hoover: Good or Bad?" To view any of the articles where Hoover is more than just mentioned, go to the bottom of this article and click on "Herbert Hoover" in the "labels" section. This will take you to all of the other articles. In my opinion, Hoover, while not a successful president, was a very important president, because he was a transitional figure who tried using many of the old ways to combat the nation's most severe economic downturn, but who then turned to new ways, albeit with many self imposed limitations. Herbert Hoover lived more than three decades after he left the presidency and I remember his funeral in 1964, which was carried on television back then. He was the first former president to die in my lifetime and I took great interest in the events surrounding the death of the 90 year old Hoover and he was discussed in my school classes too. With his death coming only a year after the assassination of President Kennedy, I'm sure that focused a lot of attention too, as prior to that, the last president to die was Franklin Roosevelt in 1945.

As I noted, Hoover was something of a transitional president, finally willing to abandon tradition in favor of new ideas and programs, although often grudgingly doing so. The interesting thing is, Franklin Roosevelt, his successor, became renowned for his efforts to combat the Great Depression with his "New Deal," but Hoover was scorned by much of the American public and even out and out hated by some. Why the difference? For one thing, being in the "broad middle" of the American political spectrum at certain times can be a very dangerous place to be. The Great Depression tried the nation's patience with Hoover, as his methodical, often doctrinaire approach ignited strong animosity from a large part of an American public stricken by poverty or the fear of falling into poverty. On the other hand, arch conservatives felt he did too much. Hoover had come out of the progressive wing of the Republican Party (progressives were a fairly substantial element of the GOP in those times), but he wasn't a "true believer," he had limits to his progressivism, although he later abandoned some of those limits. Some saw him as a conservative as president, but he wasn't a "true believer" on that side either. With Americans split between those demanding bold, decisive action and those fearful of breaking new ground, Hoover was sort of trapped in between, although, as I mentioned, many saw him as a more conservative president. The reason is likely that "Hoover the conservative" was always trying to down play "Hoover the progressive." He never really jumped onto the bandwagon of change, even when he initiated it, as he preferred to try to link his change programs to some sort of continuity with the past, as if there were no real breaks in policy. FDR had no such reluctance about embracing change, although he and Hoover shared much the same basic philosophy (Hoover would later change, as I will note later on). Roosevelt publicly embraced change, but privately worried about some of the potential consequences of that change.

With Hoover so reluctant to admit to having changed anything, FDR and his advisers took some of Hoover's ideas and programs, tweaked and expanded them, and then claimed them as their own, leaving Hoover with no credit whatsoever. Hoover's personality made him a bit of an odd guy to be president, although that isn't quite fair. In an age when radio was a great means of communication with the public, and sound movies had replaced silent films, Hoover was shy and very serious. He was not a great communicator, especially when compared to FDR's jovial, inspirational personality. On the other hand, Hoover might look downright dashing compared to his predecessor Calvin Coolidge. When the dour Coolidge died and someone told one reporter who had covered him that the former president was dead, the reporter asked, "How can you tell?"

Hoover's really big change idea came with the Reconstruction Finance Corporation, known by its initials "RFC." First, a little background. Why were banks in trouble? You go to a bank for a loan and they want collateral. You give them property, jewelry, or some other valuable items sufficient to secure the loan. The problem was, the depression brought a big decline in the value of everything, leaving banks (and other financial institutions) exposed to losses. Further, financial institutions had loaned money for companies and individuals to buy stocks, with the stock used as collateral. When the stock market imploded the value of stocks dropped leaving the institutions with losses. Also, financial institutions and insurance companies invested in stocks and bonds, with the same resulting losses. Many banks were located in rural agricultural areas. With American agriculture already in dismal condition throughout much of the 1920s, many rural banks collapsed even prior to what is generally seen as the start of the Great Depression in 1929, an event that sent more rural banks into closure. In those times, there was no system of insurance for bank deposits, so when Americans got rattled, they headed to their bank and demanded their deposits in cash, fearful they otherwise would lose their money. With banks already strapped by losses for many of the above noted reasons, coming up with large cash sums to pay depositors off was difficult. Some assets they possessed could be turned into cash fairly quickly (this is called "liquidity"), but other items took longer to sell, if they could even be sold at the depressed prices then prevalent. In order to get help from the Federal Reserve, a bank had to belong to the Fed's system. In those times, many banks didn't belong and other financial institutions couldn't belong, so there was nowhere for them to turn for help.

A couple of years into the Great Depression, Hoover tried one of his voluntary cooperative programs, this one to shore up the banking system. Hoover called together a number of the country's bank executives and got them to pool some money to loan to other banks that were experiencing difficulty. The bankers were reluctant to do so and really seem to have preferred government intervention, but they gave a lukewarm effort to satisfy the President. The thing was, they were so fearful of losing their money to the troubled banks, they set tough criteria for borrowing banks to meet and more banks failed. It wasn't long before Hoover saw that voluntary cooperation doesn't always work and he got Congress to approve the RFC. Hoover had been a businessman, he had appealed to business people for humanitarian aid during and after World War I, he was involved with business as Secretary of Commerce, so he had a strong connection to business giving him a business point of view, which coupled with his engineering mindset, gave him a zealousness for "efficiency," which then hampered the success of the RFC program. The RFC took government directly into economic matters. It was set up to loan government money directly to troubled banks and other financial institutions and to railroads and to farm boards for seed loans. The idea was, if financial institutions were stabilized, the public would gain confidence, the run on banks by depositors would cease and such institutions would then lend money to business people and the economy would recover. The problem was, many in the public were broke, so lack of demand stood in the way of any strong recovery, plus, banks took the RFC loans to stabilize themselves, but NOT to then loan money out in the troubled economy.* One of the problems was, that the Hoover mindset, and it seems even more so the mindset of the business people running the RFC, made qualifying for a loan a bit difficult, when the program was set up to make loans that were intended to be a bit risky and that would not be made by private business. Further, by making loans to banks and railroads, but NOT to states and local entities to feed and help the masses of unemployed and destitute families, Hoover was seen, correctly, as being for "trickle down" economics. During the period leading up to this point, Hoover had fretted and lectured Americans about maintaining their individualism and their commitment to self help, a sense he noted that would be damaged if Americans took government money. As the bank and railroad loans were handed out, many Americans took notice that their president had no such worries that bankers and railroad execs would have their individualism and sense of self help damaged, only the poor and unemployed, as well as many small banks and financial institutions. Money provided to the lower end likely would have helped the economy much more, as it would have created demand for goods, as the recipients were going to spend that money, not hoard much of it. 

More in "Part Two" ...

* This should sound somewhat familiar, as the bank bailouts a few years ago helped banks recover, but the banks then maintained very high credit standards so that few companies or people qualified for loans, which  left the economy to very slowly recover.

WORD HISTORY:
Lust (List)-This word, closely related to the "list" of "listless" (see below), goes back to Indo European "las," which had the notion of "be eager, want to do, desire." This gave its Old Germanic offspring "lustuz," with the same general meanings, but also "pleasure," likely from the notion that "things you are eager to do give you pleasure." This gave Old English (Anglo-Saxon) "lust," with the same meanings. Later, as religious writings began to be translated into English, "lust" took on the foremost meaning of "sexual desire," which remains its primary meaning to this day. The verb later developed from the noun. The same Old Germanic source also produced a verb "lustijanan," a verb which meant "to please, to bring pleasure, to cause desire." This then gave Old English "lystan," with those same meanings. This later became "liste" and then "list" (not related to "list," as in grocery list), an archaic word by itself now, but still used as the first part of the compound "listless;" that is, "lacking in desire or pleasure." The other Germanic languages have: German has various forms of "lust/list," some of which are, "Lust," a noun meaning "desire/have an inclination to do something," used frequently like, "Hast du Lust Karten zu spielen?" (literally, "Do you have the desire to play cards?"), and it also means "take pleasure in doing something; enjoy doing," but it can also have the "sexual desire" meaning. German also has "lustig," which, like its close English relative "lusty," doesn't necessarily carry the sexual connotation, but rather generally means "happy, merry," as in "Die Lustige Witwe," "The Merry Widow." The German verb "gelüsten" means "to crave, to covet;" that is, "have strong desire for." The German noun "Lüstling," however, carries the sexual appetite idea and means "lecher." Low German Saxon has both "Lust," meaning "desire," and the noun "Lüst" ("appetite;" that is, of course, "desire for food") and the verb "lüsten" ("to have an appetite, or craving") Dutch has "lust," which means "be inclined to do something, desire, like/relish doing." West Frisian once had "lust," but apparently it is now little used, if not outright archaic. Danish and Norwegian have "lyst" (desire, inclination, strong desire, pleasure). Icelandic has "losta," which seems to carry both the general meaning "desire," but also of the sexual type. Swedish has "lust" (desire, yearning).

The Great Depression, Part Eleven/A

Political leaders are always important, but even more so in times of crisis. Hoover’s personality seemed unable to instill confidence or to inspire hope in a nation struggling with a terrible economic collapse. He was not a commanding public speaker, nor was he very good at articulating what he was actually trying to accomplish at times, nor in rallying the public to support his programs, and his shyness made him appear less than “warm and cuddly” to the public. Throughout his life, first in the mining business and then in public service, Hoover was used to being involved with relatively small groups of people dedicated to achieving certain goals. In helping the starving and dislocated in Europe, he was surrounded by many volunteers, most not prone to bickering and sniping. In the Wilson, Harding, and Coolidge administrations, he was a Cabinet Secretary, and while politics are always in play in such an office, it was on a much smaller scale than when he occupied the White House. Hoover was also a chronic “worrier,” and no doubt this showed through to the public.

Hoover misjudged the overall problems with the Depression and its severity, but he wasn’t alone. It became so severe; no one really knew what to do, including Democrats. Often Democrats in Congress went along with Hoover’s basic legislative proposals, sometimes even strongly supporting them, with many Democrats supporting the bill to raise taxes. On a public relations level though, Hoover was president, and he suffered the consequences, not the Democrats in Congress, when his programs couldn’t turn the economy around. He had a knack for choosing the wrong side of an issue, especially when he needed a “win,” if you get my drift, and when he needed to get the public onto his side. He approached many issues with “nuance;” that is, he favored or opposed certain things, but with qualifiers. With the attention span of many Americans less than the size of a centipede, trying to explain details of legislation can be difficult, even in the best of times, but with the economy in shambles, Americans just wanted some action that would right the listing ship, not explanations of why certain parts of legislation were considered to be good or bad by the President. Hoover was principled. (“Nuance” is a word now quite familiar to one John Kerry. Remember “I voted for it, before I voted against it?”) With a severe drought affecting a large part of the farm belt and adding to the economic misery, Hoover and Congress developed a relief package of many millions of dollars to help farmers buy seed and feed their animals. Hoover insisted that the money be given as a “loan,” and not an outright grant. Further, when some in Congress wanted to offer the farmers direct help to feed themselves and their families, Hoover insisted the Red Cross could take care of that. He maintained that if the government gave farmers money directly, it would be demoralizing to them. Farmers and others in the American public had a difficult time figuring out why accepting government money was “demoralizing,” but accepting money from the Red Cross was not. Later, it was much the same with government loans to banks and certain other financial entities. Troubled banks got money, but when one community asked for an RFC loan to pay some employees, it was rejected. Again, Hoover was seen as championing banks, but not people.

The public definitely had a problem with Hoover’s hairsplitting, and his inability to fully articulate his ideas compounded the problem. (Note: Like after 9/11, Congress voted to help out the airlines with billions of dollars, going against many members' own basic political convictions, but they saw this as the only way to keep many airlines in business and preserve competition. It was much the same with the banks during the Depression. If the government had allowed the banks to falter, the whole system would have come crashing down, along with everyone's savings, making a terrible situation even worse. Hoover's administration had little choice, but to loan money to banks and financial institutions, regardless of how bad it looked to the public.) Hoover had some tough issues to grapple with for those times; as the Depression was an unprecedented collapse of the American economy. America was founded on a basic skepticism of government authority, and he avoided, as long as possible, using the government in many roles; preferring voluntary cooperation and private charity, but when he found that these things just couldn't work under the conditions of the Depression, he finally gave in and used the government to intervene, but he received little or no credit for having done so. Conservatives could not say that he didn't give the old ways every chance to succeed, although he held out against using total government compulsion of business. As I noted in an earlier part of this series, Hoover refused to release his private papers from his White House days, even while he knew the papers would show many of his critics to be wrong about the charges of inaction against the Depression and an uncaring attitude toward the suffering of so many during those times.

WORD HISTORY:
Bough-This word, with the modern meaning of "branch of a tree," traces back to Indo European "bhaghus," which meant "arm, elbow." This gave its Old Germanic offspring "boguz," which moved the meaning upwards on the arm to "shoulder, upper arm." This gave Old English (Anglo-Saxon) "bog" (with a long "o"), with the same meanings, but including "arm," in general. The idea of "shoulder, arm" led to a secondary meaning, "branch, limb of a tree," which gradually developed into the main meaning of the word. To this day, English is the only Germanic language to have developed this meaning. The spelling changed to "bough," and the "gh" was once pronounced in English, although we now say "bow," which rhymes with "how," and the word appears in the famous bedtime lullaby "Rock a bye baby, on the tree top, when the bough breaks, the cradle will fall." (Hey Mom! What the hell ya doin' putin' me way up here? I mean, down here?) German has "Bug" (long "u"), Low German has "Boog," Dutch has "boeg," West Frisian has "boech," Icelandic has "bógur," Norwegian and Swedish have "bog" and Danish has "bov." All of these mean "shoulder (usually of an animal) or bow, as in the part of a ship," although the meaning "shoulder" is now in more limited use in some of these languages.

The Great Depression, Part Six

Prior to the 1930s, generally, the Republicans were the “protectionist” party in terms of trade policy. American farmers wanted tariffs on any foodstuffs being brought into the country and American labor wanted tariffs on just about any goods being imported. During the Great War (later called "World War One"), American farmers produced agricultural products in huge quantities and a sizable portion of these products were sent overseas to help feed people where their own national economies had been disrupted so much by war. Since there was really no need to worry that these countries would try to sell agricultural products in America (after all, they couldn’t produce enough to feed their own people, let alone export anything), tariff issues were a cold topic and remained so for a time after the war ended. As the rest of the world recovered, trade issues began to heat up, although from my reading and recollection, the idea that masses of foreign agricultural products would somehow flood the United States in those times was mostly nonsense; still, American farmers liked the idea of high tariffs for goods coming into the country. Republicans benefited from supporting such tariffs, as farmers “tended” to vote Republican. Likewise, labor unions wanted high tariffs to protect against foreign manufactured items from entering the country, or at least to keep these products high in price. Naturally each industry and their workers wanted tariffs on items they produced to limit or exclude competition. The labor vote was frequently split between the two parties, but some unions “tended” to be pretty staunch supporters of Republican candidates. (Just a note: If you aren’t familiar with American politics in those times, you might think ol’ Randy has lost some of his marbles. Of course, you might think that anyway, but unions DID frequently support Republicans back then, and Republicans tended to be much more “protectionist” than Democrats. So yes, things have changed considerably since those times. Hey, what’s that rolling on the floor? Looks like a marble!)

Just for the sake of simplified example and explanation, let’s say that companies in fictitious country “Beneluxia” produce a surplus of radios. They want to sell their surplus in other countries. If American made radios cost $10.00, and “Beneluxia” made radios cost $7.00, our producers wanted to make sure that foreign made radios would cost more by the imposition of tariffs; so we would put a tariff of $4.00 per radio brought into the country, thus the “Beneluxia” made radio now costs $11.00, giving the American made product the price edge in the market.

In the spring of 1929, Congress took up legislation about tariffs. President Hoover wanted new legislation, but he and the White House staff lost control of the bill, and the whole situation got out of hand. All kinds of products were added to the tariff list, as business interests weighed in to limit or exclude competition. The problem was, a couple of years before, America had committed to trying to curtail tariffs and move toward a more open exchange of goods. The final legislation, known as the Hawley-Smoot Tariff Act, was really not what Hoover wanted, but he reluctantly signed it into law in June 1930. Almost immediately other countries retaliated, and a virtual tariff war ensued, all in the midst of America’s economic downturn. Further, without American markets to sell their products, other countries began to experience their own downturns, and before you knew it, economic calamity began to become pretty much worldwide, although especially in industrialized nations.

Germany suffered tremendously, as the peace treaty ending the Great War imposed large reparations payments on her. American banks made loans to many European businesses and countries in the post-war era. As Germany struggled to pay reparations, and she and other European countries lost markets in the U.S. because of tariffs, loan payments began to become more difficult to make. If lots of folks owe money to banks, and they can't make payments, guess what? The banking system becomes shaky.

WORD HISTORY:
Tariff-This word traces back to Arabic "arrafa," which meant "notify, inform." From this came the noun "ta'arif," which meant "list of fees." Latin borrowed the term as "tarifa," with the same basic meaning, and it later was inherited by its Italian offspring as "tariffa." English borrowed the word as "tariff" in the late 1500s.

The Great Depression Part One-B

The early 1920s saw a sharp economic downturn brought on by the economic adjustments of post World War One, then known as “The Great War” (Hey, if you called it World War I back then, that assumed that there would be at least a World War II, if not a whole series of world wars, and The Great War had also been given the “subtitle” of “The War to end wars,” an admirable but naïve notion). The President of the United States at the time, Warren G. Harding, not known as one of the stellar leaders of our history, took action, although minor action by today’s standards. You must bear in mind that in those times, “tampering” directly with the economy by government was a no-no, although today's Republicans seem bound and determined to stick to that rule, while not taking responsibility for the consequences. The government just didn’t intervene and this was not a Democratic or Republican idea, but just plain old economic orthodoxy. Harding, however, had appointed one of the best known men in the world as his Secretary of Commerce, one Herbert Hoover.

Hoover, born in Iowa, was orphaned at an early age and was then raised by his strict Quaker relatives. He attended Stanford University and became an engineer, not the “choo, choo” kind, but a mining engineer. While at Stanford, Hoover served as class treasurer (I believe that was the position, if I remember right), and this was his only “elective” office, if you can call it an office, that he held until he was elected President of the United States. He supported Teddy Roosevelt’s progressive third party candidacy in the election of 1912. He started out making two dollars a day in mines, as I recall reading, but he later was promoted, and later still owned a mining company himself. Eventually he became worth somewhere in the neighborhood of four million dollars, which would be nice to have even today, but it was a VERY considerable sum in those days, and also a considerable sum for a man only in his thirties to have earned. He was pretty much the epitome of the American "rags to riches" story.

Hoover was given a position in Democrat Woodrow Wilson’s administration, and although he didn’t disclose his political affiliation, most people thought him to be a Democrat. During “The Great War,” even before America became formally involved, Hoover was given a crucial role in providing food and essentials to people in Belgium, and then later elsewhere in Europe. It has been said that Hoover and his workers helped save the lives of millions of people. He became a worldwide hero, even having streets named for him in foreign countries. When Harding was elected president in 1920, he named Hoover to be his Secretary of Commerce. Hoover, a workaholic, made the Commerce Department one of the premier agencies of the Federal Government by gathering business statistics and information to follow economic trends. It is my understanding that many of his innovative ideas continued at the Commerce Department for many decades after he had left the office.

Hoover had been working on theories to combat economic downturns and one of his ideas was to provide temporary work, such as public works jobs, to provide employment to those who had lost jobs in the private economy; thus the workers kept much of their purchasing power, and they provided a service to the nation. When the economy turned down in Harding’s first year as president, Hoover persuaded him to provide public works employment, which he did. The program was VERY modest by any standards we’ve used since those times, but the significant thing was, it was a new idea, even a bold idea. The economy recovered in less than a year, although how much Hoover’s small public works program helped is debatable. Thereafter began what came to be called “The Roaring Twenties.”

Many new electrical appliances and devices, as well as Americans’ developing love affair with the automobile, helped send the economy soaring to new heights. The problem was, not everyone shared in the economic boom of those times. One of the big problems within the American economy during the 1920s was in agriculture. American farmers frequently produced more foodstuffs than was good for their own financial well-being. During, and for a while after the war, our farmers planted an abundance of crops, since they were helping to feed many people in Europe. Gradually, as Europe recovered, Europeans needed less and less American farm products, but our farmers kept planting too many crops, and consequently, agriculture prices plunged and remained low throughout the rest of the decade. As is frequently the case, this event didn’t happen in a vacuum, and as America’s farmers struggled to stay afloat, banks, especially those in agricultural areas, found themselves in trouble, too. Keep in mind, during our history, the percentage of Americans engaged in, or in a fairly major way connected to, agriculture, has been decreasing, but during the 1920s, the percentage was far, far greater than it is today; thus when farmers sneezed, many others caught cold.

There were literally hundreds of thousands of banks in America during that era. Many were small and served rural areas and small towns. These were NOT the banks we think of today, with a relatively few large bank holding companies controlling so much of the banking industry nationwide. If you remember the banks depicted in many of our Old West movies and television shows, like “Gunsmoke” or “Bonanza,” those banks were more typical of many small communities, and even of the neighborhoods of the larger communities of those times. With so many farmers in financial trouble, the banks in agricultural areas suffered, too, as farmers were a big part of their business. While many Americans were experiencing the “Roaring Twenties,” thousands of mainly small banks were failing. While most Americans paid little notice to the ongoing failures within the banking system, it was an ominous sign of things to come further down the road. Over time, some farmers gave up, or lost, their farms, and moved into towns and cities, where many took jobs in America’s growing manufacturing sector. While there were still many areas of the country without electricity, things like radios, washing machines, and refrigerators were some of the new products that captured the attention of so many Americans, and American industry had these products and many others rolling off the assembly lines. The wages of many Americans weren’t all that great, but another marketing technique was quickly catching on; “buy now, pay later,” “by on time,” “put it on tick;” that is, credit. Up until then, credit was NOT a common way to buy things; in fact, it went against the grain in many folks. Just compare that to today, where the average American owes thousands of dollars in credit bills, and that doesn’t count mortgages. With most appliances and automobiles costing more than average people could afford to pay cash for, businesses opened charge accounts to allow the purchase of products, with customers making regular payments over a period of time. The desire for many of the new goods of the day overcame the “pay cash” upbringing of many folks, and they opened charge accounts; products flew off of the shelves and out of the showrooms of businesses around the country. As factories bustled, this helped put the "roar" into the "Roaring Twenties."

All of this business activity and the accompanying profits had some people looking for a way to cash in on the booming economy. The stock market gradually caught the attention of many, and stocks in all of the major companies headed to the upside. With many folks raking in good profits on Wall Street, other Americans began to test the waters. What was working for people to buy refrigerators was now used for people to buy stocks, credit; it was called “margin,” or “buying on the margin.” The idea was, if you wanted a thousand dollars worth of stock, you put up one hundred dollars and the balance was “secured” by the value of the stock. As the stock market boomed, no one seemed to consider that stocks would ever go anywhere but up in price. More and more Americans joined the frenzy on Wall Street. But what if stocks actually came down in price?

WORD HISTORY:
Clean-This word goes back to Indo European "gel/glei," which had the notion of "gleam, shine brightly." This gave its Old Germanic offspring "klainiz," which meant "bright, clear;" thus also,
"pure." Gradually, in addition, the idea of "tender, delicate" developed; thus, "dainty." This gave Old English (Anglo-Saxon) "claene," which seems to have retained only the original Germanic sense of "pure, clean." This then became "clene," before the modern version. Common in most of the other Germanic languages, where the "clean, pure" idea died out, but the "dainty" idea came to the fore. English is the only Germanic language to keep the original idea of "clean, pure." In the other West Germanic languages (English is West Germanic) forms of the word mean "small," from the notion of "dainty." German has "klein," Low German has "kleen," Dutch has "klein," North Frisian (now approaching extinction) has "klien," all with the meaning "small." The word seems to have died out in still healthy West Frisian. North Germanic Icelandic has "klénn" and Swedish has "klen," both with the general meaning "weak, feeble," from the notion of "dainty." Apparently forms of the word have died out in Norwegian and Danish (also both North Germanic).

Is The Crisis Easing?

Recently there have been some economic statistics that have given a bit of hope that, ever so gradually, the crisis is beginning to ease. Let's hope, but to be quite honest, we have a long way to go. At times during the Great Depression conditions seemed to be improving, only to have the economy tumble even further. Currently, some parts of the economy do seem to at least be stabilizing, so I'm not saying things are going to get a lot worse, but there are still very troubling matters that could send the economy into another tailspin.

First, a high number of job losses are already in the pipeline. When we've heard or read that Company XYZ is cutting 5000 jobs, seldom does that mean that those 5000 jobs were eliminated that very same day, but rather those jobs will be eliminated over a given period of time, usually measured in months. So unemployment is going to get worse, at least in the next few months. Hopefully the job losses will begin to come down, but don't expect employers to come knocking at your door to fill vacant positions any time soon.

Then we have the banking situation. Right now it does seem to be stabilizing, and I hope that is truly the case, but there is an escalating crisis in commercial real estate, as many office buildings and shopping malls have high vacancy rates, or tenants behind on rent, and these properties are having increasing difficulty meeting their payments, aka, mortgages. Home foreclosures are still rising (up 24% in the first three months of this year compared to the same period last year), and with so many job losses, I can't imagine the numbers are suddenly going to start getting a lot better. As if this isn't enough, credit card and auto loan defaults and late payments have significantly increased. Again, it doesn't take Einstein to figure out that with more unemployment, there will be even higher default rates. The question is, with many of the banks doing a bit better, can they take the hit of more credit losses?

We, the taxpayers, have put billions (actually TRILLIONS have been pledged) into propping up banks, insurance companies, and automakers. I know we don't like it, and we shouldn't. BUT we still have to consider the alternative; that is, to have let all of these companies fail. Let me tell you, if you think things are bad now, how bad do you think it would be if all of these companies had gone under? We think the current 8.5% unemployment is bad, but just pick a number for what it might be otherwise: 12%, 15%, 20%??? Believe me, 20% is NOT out of question. Not only would millions of people have lost their jobs from these businesses, but the effect on the overall psyche of the country (and the WORLD) would have been so traumatizing that even 20% unemployment may be a low number.*** If you feel that your job has been shaky now, chances are, you would be another statistic in the unemployment number by now. Again folks, this is what they, the merchants of greed, got us into; virtually a "no win" situation. And don't count the bastards out yet, as I'm absolutely sure they're just waiting to get the price of oil and gasoline back up as soon as possible. Will we let them get away with it? (A word history is below)

*** Remember, the Crash of 1929 and the resulting downturn (including bank failures), scared the living hell out of people, and spending by businesses and consumers plunged by incredible amounts. Roosevelt's New Deal spent what were considered huge amounts for those days, but even those expenditures couldn't pull the economy totally out of the Depression. The truly huge amounts we spent on World War Two finally got the country out of the doldrums.

Word History:
Stark-This goes back to the Indo European root word "ster," which meant "rigid, stiff." The Old Germanic offshoot was "starkaz," which had much the same meaning, but also with the added notion that if something was rigid, it was "strong." In Old English it was "stearc." Close relatives of English, Dutch and German, have "sterk" and "stark," respectively, both meaning "strong." North Germanic also uses the word, as for instance, Norwegian has "sterk," meaning "strong." The notion of "stark=strong" gave rise to its use as an intensifier as "total, complete," by the 1400s in English, and thus to this day we say, "stark naked" ("strongly" naked, if you will; thus, "totally, completely"). This term further gave English the idea of "barren," as in "the stark countryside."

Understanding The Crisis, Part Three

I hope that all of you will try your best to follow this series. I also hope that I’ll explain things in a way that you can understand them, although certain aspects can be VERY complex. I know, too, that there is some really DRY stuff here, but please try to stick with reading it, as it is all VERY important, as I’m sure Congress and members of BOTH parties will be trying to assess what has happened in recent times, and to then put in place new laws to govern banks and various investments.

During the Great Depression of the 1930s, banks failed by the thousands. In an effort to prevent, or to at least control, such things from happening again, the Glass-Steagall Act was passed and signed into law in 1933.*** First, it established the Federal Deposit Insurance Corporation (better known to most of us as the “FDIC”), which insured bank deposits (then up to a limit of $100,000, which was quite a sum for those times); that is, if you had $5000 in a bank and that bank collapsed, you still got your $5000 back. Why would this help? Okay, one of the reasons for bank failures was “a run on the banks;” that is, many people were fearful of losing their money, sometimes their life savings, from a failing bank, and they withdrew their money. Now, there’s no question that some banks were shaky for a variety of reasons, but when a few banks collapsed, it caused even “healthier” banks to fail, because depositors withdrew their money. In such situations, even rumors (whether true or false made no difference) could cause bank failures, because depositors were terrified of losing their money, and thus the fear of a bank collapsing brought about the reality of that bank collapsing. With deposits insured, and the public aware that they could get their money even if their bank failed, it was hoped that “panics,” with mass bank withdrawals, could be curtailed, or even stopped, thus preventing the collapse of “healthy“ banks.

The new law also gave more power to the Federal Reserve in regulating interest rates, but that’s another matter. Further, “Glass-Steagall” separated banks into commercial banks and investment banks, with rigid barriers against mixing the two. Part of the reason for the Depression was seen by many, but not all, as banks having gotten too involved in investments in the stock market (including “speculation“ in stocks), for one thing. In those pre-Depression times, many banks often had brokerage departments, which often issued various securities, including stocks and bonds for corporate clients, while the rest of the bank took care of the more traditional banking roles of deposits and lending. By assuming so much risk in the brokerage area, investments gone sour could pull down the whole bank, rather than just the brokerage part. So what does this mean? Well, let’s say that you have your life savings in bank XYZ. The bank also has a brokerage unit which takes a major hit during “The Crash.” The losses from the brokerage unit have to be covered by the whole bank, not just the brokerage part. Ahh...cough, cough....guess whose money is now at risk?

Further, collapsing banks, the resulting jobs losses and the financial losses to depositors fed into the “depression” mentality that kept the downward spiral going, and as mentioned above, often caused mass withdrawals from other banks, even though some of those banks might have been sound, causing these banks to either fail or teeter on the brink. So you see, there was kind of a chain reaction. When you hear, “Your money is safer under your mattress, than in a bank,” this is more or less what is meant.

I won’t get into too much more on this part of the subject, but there were additions to the Glass Steagall Act made later in the 1950s, prohibiting bank holding companies that owned two or more individual banks from buying banks in another state.+++ Further, these bank holding companies were restricted to more or less traditional banking practices and restricted banks from the insurance business .

Many bankers didn’t like the laws, and over time, there were attempts to get aspects of the laws changed or repealed, with more intense efforts beginning during the Reagan years. In 1987, the Federal Reserve Board voted to loosen restrictions on some banking activities, including the issuance of....“mortgage backed securities.” Then Fed Chairman, Paul Volcker, dissented, fearing that banks would lower the standards for loans, then market shady loans to the public, all to make money from these securities they would then sell. (See Part One, for the basic workings of the mortgage lending business) Also in 1986/1987, the Fed broke the precedent of Glass-Steagall by allowing banks to again engage in certain limited investment activity, but limited such activity to no more than 5% of their gross business. In 1989, the Fed, now under Alan Greenspan, a strong advocate of deregulation, increased the percentage to 10%, and in 1996, to 25%. Gradually the banking laws were being dismantled.

In 1999, Senator Phil Gramm (R-Texas), Rep. Jim Leach (R-Iowa) and Rep. Tom Bliley (R-Virginia) introduced a measure in Congress that would effectively repeal much of “Glass-Steagall.” It permitted banks to outright own investment firms and insurance companies. The basic bill, also known as “The Financial Services Modernization Act,” had the support of the Clinton White House and Treasury Secretary Robert Rubin.^^^ The first vote in the Senate was 54-44, with 53 Republicans and one Democrat voting for the bill, and 44 Democrats against. The House passed a somewhat different version by voice vote; that is, there was no roll call to indicate how individual members voted. The bill went to conference committee to get an agreement between the two versions and the final bill was then passed by the Senate 90-8 and by the House 362-57. Clinton signed the bill into law. The walls between various financial sectors were shattered.

To be continued...

(No "Word History" this time)

***This was actually Glass-Steagall #2, as a previous act was passed in early 1932 and was known by the same name.
+++One could certainly argue that this prevented any banks or bank holding companies from becoming “too big to fail.”
^^^Rubin was a former exec of Wall Street investment firm "Goldman-Sachs." Not long after Glass-Steagall was repealed, he went to work for one of the beneficaries of the new law, Wall Street financial conglomerate "Citigroup." Hmm, now you people don't think....there could have been some tie....oh come on!!! You folks are cynical!!! (But so am I!)

The Banking System

For "Word History" followers, I'm still working on "Part Two," and I'm getting close to finishing it, but it does take quite a bit of time to research each word through various sources; so I hope to have it posted soon; there is, however, a single word history at the end of this article.

As we all know, many of the banks, including many of those "too big to fail," are in trouble. Any regular readers here already are well aware that I'll NEVER be mistaken for a supporter of any wealthy big business venture, but first, we all need to ask ourselves two questions: "What kind of banking system do I want?" And, "What is in MY self interest?" As to the first, I guess I'd have to say that we only have a couple of "broad choices;" the basic system that has evolved during the history of the country, or some other very different system. The key to what I'm saying here is "broad." I am not for a total overthrow of the basic banking system, but I do believe that it needs to be regulated. Since the time of The Great Depression and the subsequent regulation imposed because of that fiasco, the bigwigs have stomped around huffing and puffing about how unfair government regulation is. I equate them with criminals who get shot or clobbered breaking into someone's home and then they, or their families, argue how unfair it is that they were injured, and that people shouldn't be able to hurt someone breaking into their home unless there is clearly "a threat to their safety;" as if someone breaking into your home ISN'T a clear threat to a person's safety. Criminals always seem to feel they are being treated unfairly, and of course, there's always that premise that comes to mind: "self interest." If criminals can make things safer for themselves, hey, they're going to do it; it is in their interest to do so. Such is the case with rich bankers and their "investors," frequently those of the "sit on their ass class." No regulation means they can do anything they want, including to you, and legally get away with it. Make no mistake about it folks, that's why all of the whining about regulation by bankers and their investors over the decades. Like those home robbers, they have NO concern for YOUR well being, only their own. As to the second point, I don't see it in non rich people's interest to have the whole banking/financial system come crashing down. I know you're mad, and YOU SHOULD BE!!! So am I, but sometimes we have to swallow hard and move on, hoping to avoid an even worse calamity. If greater banking regulation to avoid such nonsense is the result, we'll all be better off for it.

Okay, but the point is, if you favor the basic system, but re-regulated, and probably with even more enhanced regulation than that of the New Deal era, because times have changed so much since then, well we're going to have to have more money for bailouts, because they've gotten themselves (ad we're the "collateral damage;" get it? Banks....collateral!) into one hell of a mess, and that mess has helped to bring the country down with it. The conservative free market people who at least are consistent say no taxpayer money should be used to bail out bad banks and that we should just let them go under. In an ideal world, and this is NOT an ideal world, that would be true, and even since the New Deal era, banks have been taken over by government regulators due to insolvency, but these were generally a few banks here and there, and their demise didn't cause a potential depression, or even much of a ripple in the lives of most Americans. The situation now is much different. So many big banks are in trouble that their collapse would undoubtedly send shock waves around the WORLD, not just in America. The same argument can be made for American automakers. In an "ideal world," they could be left to go under, but not only would that give Americans a jolt to their pride, but certainly hundreds of thousands, if not millions, of Americans whose jobs are tied to the auto industry would go under too. Like we need a couple more million jobless Americans. Add the banking system jobs to the unemployed, if the banks go under, and you got probably a couple of more million. There's no doubt in my mind that the resulting catastrophe would surpass the Great Depression, which might happen even if we continue the bailouts. So, as I see it, we've got our backs to the wall. These last eight years, especially, have put us in what may well be a "no win situation" about the entire economy, not just the banking system.

Some conservatives are saying that with all of the spending being done by government, that in a few years, inflation could be a big problem. They "may" be right, but that can't be a reason for inaction, folks. If the doctors told you, "You have to have this surgery, or you are likely to die," would you say, "Let me think about this....hmm....This surgery is going to cost the insurance company a bundle, and they may raise my rate?"

Word History:
Bolster-This comes from Indo European "bhelgh," which meant "to swell." The Old Germanic offshoot was "bolkhstraz/bolkstraz," which gave English "bolster," which seems to have been spelled in Old English just as it is today, and also gave German "Polster." The original meaning in Old English was "long pillow stuffed with some material" (You can see the "to swell" meaning in this.) Later, in the 1500s, a further development came about from this "stuff something so that it puffs up" meaning, so that it took on the meaning of "support something." German "Polster" still means "pillow, or padding."

Deregulation and Us

I came across this article (with link below) and it covers so many things well, that I thought I'd share it with readers here. I know that some financial jargon is difficult to understand, but I also think this article explains the basic flaws in the system in a relatively easy way. In many ways, this is what I've been gradually leading up to in the "Conservatism Unravels" series. (A word history is below the link)

http://seekingalpha.com/article/71265-the-credit-bubble-deregulation-gone-wild

Word History:
Quick-I love this word because of the way the meaning has changed, although with ample connection to the original meaning. Old Germanic had "kwikwaz," which had to do with "living, being alive." This had been derived from the Indo European base "gwej/gwiwo," which also meant "to live, be alive."*** The developing Germanic dialects took the word in some form, and Old Frisian and Old Saxon had "quik," Old Norse had "kvikr," Old High German had "quek," and Old Randy had...let's skip that one. Old English had "cwic," which also meant "living, alive." The notion of "living" grew to mean "lively," which in turn, during the 1400s, took on the meaning of "swift, fast." Modern German has "keck," which means "bold, saucy, forward." Dutch has "kwiek," meaning "sprightly, lively," Swedish has "kvick," which means "rapid." In English we still have the original meaning found in the expression, "the quick and the dead" ("the living and the dead").

***This base also gave words to languages related to English further down the family tree:
Latin had "vivus," Greek had "bio," Russian had "zhivoj," all with connections to "alive, living, lively."