Dealing with the Great Depression

* President Hoover and free-market causes

- lack of financial regulation

-> loose bank reserve requirement

-> lack of bank and business balance sheet transparency

-> rampant "buying on margin"

=> borrowing huge amounts to buy stocks and bonds

=> works fine as long as market only goes up, but...

- no coherent inter-bank interest rate control

- no social safety net if the economy went down

-> no unemployment insurance, FDIC, Social Security, etc.

to provide demand in a down economy

- "the business of America is business" - Calvin Coolidge in the 1920s

* October 29, 1929

- massive business over-capacity leads to slowing

-> no social safety net makes the decline a cliff

- broad stock ownership meets panic selling

-> margin buyers have NO CHOICE but to sell

=> banks make "margin calls"

- banks which lent money poorly start to fail

-> panicked depositors begin to pull money out of banks all at once: "run on the bank"

-> no lending for purchases or for new business activity

-> demand and business enter uncontrollable downward spiral

=> see the film Modern Times

- Hoover and Republicans do nothing

-> assume the free market will heal itself

* Roosevelt's New Deal

- economy doesn't heal itself and Republicans are whomped in the 1932 election

- Roosevelt starts with a Bank Holiday

-> recapitalization and forced sale

=> save the healthy banks and kill the weak

=> rebuilds confidence

- sets up the "alphabet programs"

-> CCC = Civilian Conservation Corps

=> parkes, trails, Green Lake cleaning, etc.

-> FHA = Federal Housing Administration

=> easier mortgages and public housing building

-> FSA = Federal Security Agency

=> ran social security, eduction, early food and drugs administration

-> HOLC = Home Owners Loan Corporation

=> direct government loans to home owners to keep housing prices from collapsing

-> NRA = National Recovery Act

=> forced mediation between unions and businesses, government industrial control

=> later declared unconstituional

-> TVA = Tennessee Valley Authority

=> massive dam and electrification program in Appalachia (basically)

-> SSA = Social Security Act

=> money for the old and disabled

-> WPA = Works Progress Administration

=> massive jobs and infrastructure (things that connect things) program

+> interstates, dams, ports, arts, history, electric grid, etc.

=> considered ""