Thursday, March 19, 2015

FDIC's reduction in bank failures vs. trickle-down economic's INCREASE in bank failures

(During the roaring twenties and the early years of the Great Depression bank failures were routine occurrences. After FDIC was created in late 1933, not so much. Image courtesy of FDIC.)

Before FDIC was created Americans routinely lost their bank deposits when banks failed. For example, between 1930 and 1933, 9,000 banks failed and depositors lost $1.3 billion (about $23 billion in today's dollars). See The FDIC: A History of Confidence and Stability.  

FDIC provides a stable banking system by requiring banks to be insured. This not only protects depositors but also prevents "bank runs" (mass withdraws of money due to panic). FDIC is one of the most successful New Deal creations: "Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure" (see here).

Bank failures by time period:

1921-1929 ("The Roaring Twenties"): 5,711 (hundreds every year, not just 1929)

1930-1933 (The Great Depression): 9,096

1934-1943 (New Deal Years): 355

1944-1949 (FDIC and other regulations firmly in place): 16

1950-1959: 26

1960-1969: 44

1970-1979: 72

1980-1989 (Trickle-down economics & de-regulation): 2,005

1990-1999 (After shaky start, some stability returns): 923

2000-2009: 210

2010-2014 (Great Recession): 339



(In the video above, U.S. Senator Elizabeth Warren explains to a skeptical group how financial regulations created during the New Deal era facilitated many decades of stable banking in the U.S. Included is excellent commentary by Cenk Uygur of the Young Turks. It is clear from this video that many commentators, like those Warren is speaking to, have very little understanding of our banking history - yet, they have the public's ear and trust. Amazing. Original YouTube link: https://www.youtube.com/watch?v=nTWfa-iO9Nc.)

FDIC has provided stability for our banking system, even when our economy has suffered from fraud (the recent recession) and trickle-down economics (i.e., massive tax cuts for the rich, financial de-regulation, and austerity that primarily preys upon the finances of the middle-class & poor).

It will only be a matter of time before Republican and Libertarian politicians try to eliminate FDIC in their quest for an economy with absolutely no regulations (their Ayn Rand utopia), as well as to satisfy their desire to eliminate every government program that assists the non-wealthy. When that day comes, next year or 50 years from now, Americans will once again lose their money when fraudulent & incompetent banks fail. And, unaware of their New Deal history, they will throw up their hands and say, "What happened?", just as Alan Greenspan (a major Ayn Rand devotee) said of the massive mortgage & securities fraud that occurred after years of weakened regulatory oversight, "A critical pillar to market competition and free markets did break down. I still do not fully understand why it happened."

No Mr. Greenspan, you certainly don't.

2 comments:

  1. I've found that the Big Lie approach used by Rand's followers works up to a point, although it could also be said that during his tenure at the Fed, everyone simply accepted his Delphic babbling as though he was the voice of the gods (the market), and yes, the reference to the Cult of Apollo at Delphi was deliberate considering the role that ancient temples played as the central deposit sites for the wealth of the monarchs of the various empires and kingdoms, and the political role the temples played as in the case of the destruction of ancient Greece by their following of the "advice" of Delphi, which coincidentally, was holding a large sum of money from the Babylonian Empire. The other case is their support of the Romans versus their rivals, the Etruscans. In the case of Greenspan, to claim that he couldn't foresee the trouble is just doublespeak since he personally as head of this nations more treasonous institutions, JP Morgan, wrote in 1984 on the importance of taking down the 1933 Bank Act (Glass Steagall). The effect in the 90's was not stability as you wrongfully say, but the gobbling up of most of the former commercial banking sector once pesky regulations were out of the way and banks were forced to go more and more into risky speculative activity that used to be outlawed for good reason, as the failing banks were just merged into other banks. They simply swept the problem under the rug, and how we have a mountain of dirt under a tiny rug, if you can picture such a thing.

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    1. Okay, you've motivated me to change "stability returns" to "some stability returns." Of course, I'm talking about the lessening of bank failures, not the exact reasons for that lessening - or other banking issues/problems. Our banking system is still a mess (usury, continuing fraud, too big too fail (or jail), too much political influence, regressive fees, etc., etc.). Unless you're in the Forbes 400 of course, then the banking system is working quite well.

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