Wear a smilette, happy days are ahead… but when? October 8th, 2008
Roanoke, Texas
There’s an uncanny similarity between the great depression and the present crisis, not just in the events but in Washington’s response. The republican president at the time, Herbert Hoover woke up late, as did the American people. They bought his line of ‘a chicken in every pot and a car in every garage’ (now they’re talking cycles!), electing him in 1928 only to quickly turn him into a universal hate figure (like Dubya, in the current polls).
But republicans carried on gamely at that time, trying to spread a message of hope and exhorting people to take responsibility. Much the way Sarah Palin did in the vice-presidential debate–even though she seems to know as much about the economy as she does about Alaska-Russia relations.
One of the better ripostes to this ‘hope; spend within your means’ line, appeared in a 1930s cartoon which said that prosperity was around the corner and if you cannot afford a smile, if you should wear a ’smilette’. This is precisely what kitchen table republicans are now advocating, though we are short of a good cartoon in response.
I met someone who lost his job last month. He would have been okay about wearing a ’smilette’. I suspect the disincentive is that if you wore it too long, you’d end up looking like a stewardess on a micro-light aircraft.
The ‘new direction’ that Washington is talking about has a word in common with FDR’s 1932 ‘new deal’ in the literal sense, but really, the steps being proposed are very much like the ones in the 30s. At a fundamental level will take taxpayers’ money. This is difficult to sell, politically, which is why the first attempt at getting the bill passed in the Congress failed.
FDR’s plans kicked in when unemployment was breaking America’s back and included things like soup kitchens, and (generally non-productive) government employment schemes. But he also set up the Home Owners Loan Corporation which lent money to about a million possible defaulters. This is very much on the table now, because apart from the from all the foreclosures, there are between 6 and 10 million people who have an incentive to walk away from their mortgage payments.
The most important response common to that time and now, however, is more regulation. The Securities Exchange Commission was set up in 1934 to prevent a repeat of 1929. One of the main changes it made was to stop margin buying. If you wanted a stock, you had to show about half the money.
In the present scenario, the financial markets will have to say goodbye to many of its unsupervised activities. The first in line will probably be the clandestine, and catastrophic, credit swaps (I lend you money, and then insure myself against a default with a third person, because i know you cannot repay; if, as i expect, you don’t pay me, he has to. this was the baby AIG was left holding.)
Regulation has been a bad word in America for the longest time, and the changes in the offing are likely to be profound: there’s a realisation that America has been a little too free and much too brave for its own good. Republican or democrat, this translates to ‘we always sort of knew that the market couldn’t take care of all our problems, but now we’re willing to admit it and do something about it’.
Deeper down, the crisis doesn’t just affect main street, or John McCain road. During the Great Depression, it entered people’s homes. in 1940, 14 years after the realty bubble burst in Florida and and pinged America into a downward spiral, a survey found that 1.5 million jobless, depressed, American men had abandoned their families.
The first reports of marriages breaking up over who’ll pay the mortgage bill are already coming in this year.
Tags: Barack Obama, Depression, FDR, Financial Crisis, John McCain, Main Street, Marraiges breaking up, Regulation, Roanoke Texas, Sarah Palin, Sub prime crisis, US Elections 2008
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