Many economists are analyzing the financial data from the Great Depression in an effort to glean some knowledge as to what worked and what didn’t during that time so as to avoid making the same mistakes when dealing with our new great depression.
They all agree that “poorly designed regulations governing our financial systems including our banks, led to our current crisis”. People that follow the historical development of our financial dilemma can point to legislation that kept loosening regulations, especially the regulations limiting risk taking by banks and other financial institutions, to the point where banks felt free to take on risk to an unwise and irresponsible level.
This was allowed by both political parties that just wanted the good economic times to keep on rolling along; objections were quickly suppressed.
During the Great Depression is when most of the banking regulations came into being. They came into being because unregulated banks in the 1930s failed in mass numbers with no insurance for depositors who basically just lost all their life savings.
It is ironic that our government felt safe in relaxing those Depression era safeguards and here we are, victims once again of an unregulated banking system. We should be grateful to FDR for at least setting up the FDIC so life savings were not lost this time (at least to $100,000).
Henry Paulson, Treasury Secretary under Bush was a big proponent of relaxing banking regulations. Alan Greenspan, Fed chairman under Bush did not want hedge funds regulated. No wonder they went crazy when the economic shit hit the fan under their watch and because of their regulation laxness.
In the past, banks took in deposits at lets say 2% and lent it out at 7%. The banks were limited what they could lend by the amount of deposits they had on hand. Deregulation during our time allowed the banks to loan out money without specifically tying those loans to actual deposits and this is where things got totally out of hand as banks became banks built on air!
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