1929 vs. 2009: Depression Bound?
What's more, today when banks go under they are ushered into receivership by the Federal Deposit Insurance Corp., the governmental agency created in 1933 to protect depositors' assets. That means most depositors' assets are safe even if the bank collapses under the weight of its bad loans or through other financial mismanagement. As an added protection, the FDIC in October temporarily increased the amount it insures per depositor at each institution from $100,000 to $250,000.
Meanwhile, many have noted the difference in attitude among government finance officials in 1929 and today. Back then, officials from President Herbert Hoover to Treasury Secretary Andrew Mellon stood pat, optimistic that the stock market crash in October 1929 was just a minor bump in the road and that the free-market economy would correct itself in due time.
This time, however, the government has been proactive in trying to head off further economic travails. For starters, the Federal Reserve has steadily cut key interest rates since September 2007, and recently moved the federal funds rate to between zero and 0.25% -- the lowest level in history.
Meanwhile, Congress in October narrowly approved $700 billion to bail out the nation's banks, and the Federal Reserve the following month signed off on an $800 billion stimulus package to help unfreeze the tight credit markets. And billions more in loans and other financial assistance have been promised to the beleaguered auto industry and homeowners facing foreclosure.While some cheer for the government intervention, others argue that these bailout dollars will only end up digging the U.S. economy deeper into the hole. So which will it be? At this point, it's too soon to tell. But just like during the Depression, each day brings the economy one step closer to a recovery. Some things never change.
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