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Government to the Rescue – 75 Years Ago and Today
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This month marks the 75th anniversary of U.S. President Franklin Delano Roosevelt’s first fireside chat. The focus of that radio broadcast to the nation on March 12, 1933, was the banking crisis that was destabilizing the U.S. economy.

Earlier in the month (March 6), Roosevelt had delivered his first inaugural speech – “the only thing we have to fear is fear itself” speech. In it, the new president acknowledged the difficult economic situation and clearly stated his intention to attack it. In part, he said “… in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency.”

A couple days later, he declared a “bank holiday,” temporarily closing banks to keep panicked investors from withdrawing their cash and depleting bank reserves.

In his fireside chat, FDR explained the rationale for the bank holiday:

“When you deposit money in a bank the bank does not put the money into a safe deposit vault. It invests your money in many different forms of credit-bonds, commercial paper, mortgages and many other kinds of loans. In other words, the bank puts your money to work to keep the wheels of industry and of agriculture turning around. A comparatively small part of the money you put into the bank is kept in currency,” he said.

Roosevelt further explained that “because of undermined confidence on the part of the public, there was a general rush by a large portion of our population to turn bank deposits into currency or gold. — A rush so great that the soundest banks could not get enough currency to meet the demand.”

In his talk to radio listeners, Roosevelt said, “We had a bad banking situation. Some of our bankers had shown themselves either incompetent or dishonest in their handling of the people's funds. They had used the money entrusted to them in speculations and unwise loans. This was of course not true in the vast majority of our banks but it was true in enough of them to shock the people for a time into a sense of insecurity and to put them into a frame of mind where they did not differentiate, but seemed to assume that the acts of a comparative few had tainted them all. It was the Government's job to straighten out this situation and do it as quickly as possible — and the job is being performed.”

Over the next weeks and month, Roosevelt and the U.S. Congress enacted an extensive array of “New Deal” programs, such as the Federal Securities Act and Social Security Act. They also created the Home Owners Loan Corporation and the Federal Deposit Insurance Corporation, which helped stabilize the economy and the banking industry.

The particulars are different, but there is a certain déjà vu about the financial crisis the United States is currently grappling with. Increasingly aggressive actions by the Federal Reserve may help the nation’s financial institutions regain their balance and avert a further avalanche. Over the weekend, for example, the Fed cut its emergency lending rate to financial institutions from 3.50% to 3.25% and approved a financing arrangement allowing JPMorgan Chase to acquire Bear Stearns investment bank at a bargain price.

Recovery could take many months as multiple factors continue to stress world markets, the U.S. economy, and the confidence of investors and consumers. Further aggressive action by the federal government may be warranted to help us all overcome our fears. But keep in mind, some of the New Deal programs were designed to be temporary; some were more effective than others; and some were later declared unconstitutional.
















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