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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsHow Out-of-Control Credit Markets Threaten Liberty, Democracy and Economic Security
http://www.alternet.org/economy/156193/how_out-of-control_credit_markets_threaten_liberty%2C_democracy_and_economic_security_/_640x389_310x220
The awful experience of the Great Depression made clear to many economists and laymen alike that credit is at the heart of a functioning capitalist system. Without access to credit, many businesses die and many individuals and households run out of money and go bankrupt.
Yet in popular media accounts from the Great Depression, the focus is almost always on the stock market and the Great Crash of 1929. You hardly ever hear that it was the contraction of credit and the seizing up of credit markets that made the Great Depression so traumatic.
In 1932, Hoover acknowledged the importance of credit to a crowd in Des Moines, Iowa: "Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs." He was right about the vital part credit plays in the economy. But he got a whole lot else wrong. His speech was part of a campaign of anti-foreigner rhetoric designed to insulate himself from blame for America's economic depression building on his watch.
In his Des Moines address, Hoover cited the strangulation of credit caused by "foreign countries" which "drained nearly a billion dollars of gold and a vast amount of other exchange from our coffers." The president further blamed "some of our own people who, becoming infected with world fear and panic, withdrew vast sums from our own banks and hoarded it from the use of our own people." That's why the Great Depression happened, Hoover said.
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How Out-of-Control Credit Markets Threaten Liberty, Democracy and Economic Security (Original Post)
xchrom
Jul 2012
OP
HiPointDem
(20,729 posts)1. "Hoover was way off about who and what was at fault."
the principal cause of bank failures has not been a lack of liquidity but rather insolvency caused by need for a drastic write-off in bond portfolios. In other districts, I understand, many banks are threatened with insolvency because of losses in real estate loans as well as bonds."
During the Great Depression, Hoover just let the big financial institutions go under, causing credit to contract much further. That mistake has taught us what mass bank failures can do and has conditioned us to avoid them. Unfortunately, we have made our own mistake this time around. Like the banks of the earlier era, today's banks have risked insolvency because of their reckless real estate loans and bond exposure. By perpetrating the Great Bailout, we have allowed our largest banks to escape any repercussions for their recklessness and get off virtually scot-free.
bubble & crash, same as before, the only difference being this time the chosen get bailouts.
During the Great Depression, Hoover just let the big financial institutions go under, causing credit to contract much further. That mistake has taught us what mass bank failures can do and has conditioned us to avoid them. Unfortunately, we have made our own mistake this time around. Like the banks of the earlier era, today's banks have risked insolvency because of their reckless real estate loans and bond exposure. By perpetrating the Great Bailout, we have allowed our largest banks to escape any repercussions for their recklessness and get off virtually scot-free.
bubble & crash, same as before, the only difference being this time the chosen get bailouts.
PETRUS
(3,678 posts)2. I appreciated this passage:
"Say I'm walking down the street and I see this store and I am thinking, "They have Kettle Korn? Wow, I love this stuff. Let me get some." The problem: the owner of the store wants no black people inside. That's his policy. This isnt a government policy since discrimination based on race or ethnicity is illegal in the United States. But, this business owner doesnt want blacks in his store. So when I enter, he tells me to leave because I am violating his stores "liberty." I would argue that my individual liberty trumps his business liberty. A corporatist would say that the business owner can do as he pleases."