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Global Financial and Economic Crises

Pre-2001 Policies and Actions

Project: Global Financial and Economic Crisis 2007-Present
Open-Content project managed by KJF, mtuck

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Roosevelt giving his inaugural address.Roosevelt giving his inaugural address. [Source: US Politics Guide]Newly elected President Franklin Delano Roosevelt delivers his Inaugural Address in Washington immediately after being sworn into office. To a country reeling from the effects of the Great Depression, Roosevelt offers a ringing promise of economic change—the first hints of what will become his “New Deal” economic policies. “The only thing we have to fear is fear itself,” he tells the crowd, “nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”
Acknowledges Economic Calamity - He continues: “Our common difficulties concern, thank God, only material things. Values have shrunk to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce: the savings of many years in thousands of families are gone. A host of unemployed citizens face the grim problem of existence. Only a foolish optimist can deny the dark realities of the moment.”
'Rulers of the Exchange,' 'Money Lenders' Stand Responsible - “Primarily, this is because the rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failure and abdicated,” Roosevelt says. “Practices of the unscrupulous money changers stand indicted. True, they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. There must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance.”
Call to Action - He continues: “This nation asks for action, and action now. Our greatest primary task is to put people to work. It can be accomplished in part by direct recruiting by the government itself, treating the task as we would treat the emergency of a war.… It can never be helped by merely talking about it. We must act, and act quickly. 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. These are the lines of attack.” [Time, 3/13/1933]

Entity Tags: Franklin Delano Roosevelt

Category Tags: Pre-2001 Policies and Actions

President Nixon officially announces the end of the gold standard system of monetary policy for international exchange of gold deposits in an evening address to the country. Nixon’s move to sever the link between the dollar’s value and gold reserves effectively ends the Breton Woods system of monetary exchange and changes the dollar to a “floating” currency whose value is to be determined largely by market influences. Nixon’s decision results from a run on gold exchanges and rampant speculation in gold markets in Europe, and he changes the US monetary policy after receiving advice from Treasury Secretary John Connally, Under Secretary for Monetary Affairs Paul A. Volcker, and others in a special working group. The dollar becomes a fiat currency, causing a brief international panic before other countries follow suit and also allow their currencies to “float.” [New York Times, 8/16/1971, pp. 1]

Entity Tags: John Connally, Paul Volcker, Richard M. Nixon

Category Tags: US Monetary Policy, Pre-2001 Policies and Actions

Efforts are made to improve the interest rate environment in which banks, and especially thrifts, have to operate, such as the Monetary Control Act of 1980 (see April 1, 1980), and numerous changes in the regulatory frameworks at the state and federal level. Despite all this activity, it remains the case that interest rates on sources of funds to the thrift industry lags behind those that could be paid by commercial banks and nonbanks in new vehicles such as money market accounts. Consequently, thrift bankers find it increasingly difficult to keep their businesses supplied with enough funds to sustain a profitable rate of new lending. The industry therefore cannot avoid a period of higher than historical failure levels and voluntary mergers and departures from the industry. [Brumbaugh et al., 1987]

Entity Tags: Monetary Control Act of 1980

Category Tags: 1980s Savings and Loan Crisis, Pre-2001 Policies and Actions

President Jimmy Carter signs the Depository Institutions Deregulation and Monetary Control Bill into law. Carter says the bill will “help control inflation, strengthen our financial institutions and help small savers.” Among the bill’s main provisions are raising of ceilings on the interest paid to small savers and a substantial enhancement to the monetary control powers of the nation’s central bank, the Federal Reserve System. The main provisions of the law:
bullet Permanently overrides state-imposed ceilings on mortgage rates unless states act within three years to reenact them.
bullet Wipes out for three years interest rate limits on agricultural and business loans of more than $25,000.
bullet Increases to 15 percent from 12 percent the maximum interest rate on credit union loans, with even higher rates possible for periods up to 18 months.
bullet Continues use of credit union share drafts, bank’s automatic transfer accounts and remote service units.
bullet Simplifies truth-in-lending laws.
bullet Requires lenders to repay consumers for overcharges.
bullet Authorizes federal savings and loan associations to expand their consumer loan and credit card operations and allows them to offer trust services.
bullet Gives the Federal Reserve a more effective reach by establishing a universal and uniform system of banking reserves. Over an eight year period all depository institutions, including savings and loan associations and mutual savings banks, will be encouraged to post reserves with their chapter Federal Reserve banks which will be 12 percent of all transactions as opposed to the tiered structure at 16 1/4 percent, leaving those that left the Federal Reserve System prior to the enactment of this law at a competitive disadvantage until they themsleves register their funds with the Federal Reserve. [New York Times, 4/1/1980, pp. 1]

Entity Tags: James Earl “Jimmy” Carter, Jr., US Federal Reserve

Category Tags: US Monetary Policy, Pre-2001 Policies and Actions

Congress approves legislation which repeals the Glass-Steagall Act of 1933, greatly reducing regulation of Wall Street and clearing the way for the cross-ownership of banks, securities firms and insurers. The measure is approved in the Senate by a vote of 90 to 8 and in the House by 362 to 57. President Bill Clinton will sign the Gramm-Leach-Bliley Act into law on November 12th, 1999. [Library of Congress, 3/27/2009] The New York Times reports that passage of the bill elicits optimism that the measure will enhance American competitiveness and ensure American dominance in the global financial marketplace, as well as concerns that deregulation will lead to a future financial meltdown. The Times further notes that experts predict the new law will result in a wave of large financial mergers.
Optimism over Passage of the Measure - Treasury Secretary Lawrence H. Summers praises the legislation, declaring that the law “will better enable American companies to compete in the new economy.” Among others praising passage of the measure:
bullet Senator Phil Gramm (R-TX), sponsor of the bill, says: “We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.”
bullet Rep Jim Leach (R-IA) remarks: “This is a historic day. The landscape for delivery of financial services will now surely shift.”
bullet Senator Charles E. Schumer (D-NY) says, “There are many reasons for this bill, but first and foremost is to ensure that US financial firms remain competitive.”
bullet Senator Bob Kerrey (D-NE) says, “The concerns that we will have a meltdown like 1929 are dramatically overblown.”
Warnings over Implications of the Measure - The measure provokes warnings from a handful of dissenters that “the deregulation of Wall Street would someday wreak havoc on the nation’s financial system,” according to the Times. Among the dissenters are:
bullet Senator Byron L. Dorgan (D-ND), who says: “I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010;”
bullet Representative Maxine Waters (D-CA), who remarks that the bill is “mean-spirited in the way it had tried to undermine the Community Reinvestment Act;”
bullet Senator Paul Wellstone (D-MN), who says: “Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.” [New York Times, 11/5/1999]

Entity Tags: Clinton administration, Byron L. Dorgan, Barney Frank, Bob Kerrey, Charles Schumer, William Jefferson (“Bill”) Clinton, US Congress, Jim Leach, Phil Gramm, Gramm-Leach-Bliley Act, Larry Summers, Paul Wellstone, Maxine Waters, Glass-Steagall Act

Category Tags: US Financial Deregulation, Pre-2001 Policies and Actions, Commentaries and Criticisms

“The worst economic turmoil since the Great Depression is not a natural phenomenon but a man-made disaster in which we all played a part,” says Guardian City editor Julia Finch, who lists individuals who led the world into its current economic crisis (see June 2008). These individuals include:
bullet Alan Greenspan, US Federal Reserve chairman, 1987-2006: “[B]lamed for allowing the housing bubble to develop as a result of his low interest rates and lack of regulation in mortgage lending. Backed sub-prime lending; urged homebuyers to swap fixed-rate mortgages for variable rate deals, leaving borrowers unable to pay when interest rates rose. Defended the booming derivatives business, which barely existed when he took over the Fed, but which mushroomed from $100tn in 2002 to more than $500tn five years later.”
bullet Mervyn King, governor of the Bank of England: “His ambition was that monetary policy decision-making should become ‘boring.’”
bullet Bill Clinton, former US president: “Beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans. Repealed the 1999 Glass-Steagall Act, prompting the era of the superbank; the year before the repeal, sub-prime loans were just 5 percent of all mortgage lending. By the time the credit crunch blew up it was approaching 30 percent.” [Guardian, 1/26/2009]

Entity Tags: Mervyn King, William Jefferson (“Bill”) Clinton, Alan Greenspan, The Guardian, Julia Finch

Category Tags: Commentaries on Economic Issues, Britain, USA, Pre-2001 Policies and Actions, Bush Policies and Actions

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