Do you have confidence in banks these days? I have a feeling that many people don't trust what's happening, what with all the bank take-overs, failures, near failures and bailouts. But, the same mistrust in banks has occurred before, and this country has kept on ticking. The real question is, perhaps, whether there is a real difference between now and the Great Depression.
I was browsing through old newspapers the other day and discovered a page filled with news about the stock market and banks in the Daily Capital News from Jefferson City, Missouri. The date was March 15, 1933, well into the Great Depression, and the news was cautiously celebratory as a headline read, “Era of Fear is Declared at End Now.” Was that headline correct?
The Great Depression was the largest and most important economic depression in modern history, and it is used as an example of how far the world's economies can fall. Historians often mark October 29, 1929 as the beginning of the Depression, as that day marked the most devastating crash in the stock market. The market, between 28 and 29 October, fell almost thirty-three percent. The market closed on the 29th at $230.07.
The crash came during a period of declining real estate values in the United States, and it was a signal for a chain of events that led to a period of economic decline in industrialized nations. The Great Depression ended at different times in different parts of the world, but most historians agree that it began to end in the United States with the onset of World War II. Although embargoes had been enacted starting in 1939, the U.S. did not declare war until the Japanese bombed Pearl Harbor in 1941.
Therefore, 1933 was a bit early to be declaring an “end of fear” for financial woes. But, the story was interesting, as the headline marked an incident where it was feared banks would fail entirely – and then they didn't. The story opens:
“Cheered by return of gold and deposits to reopened banks, the administration tonight declared the "era of fear" ended and proceeded with plans to extend the resumption of normal activities to all communities tomorrow.”
Reading further into several stories on that page, it appears that bank customers were hoarding gold and money. They were, literally, starving banks in fear of losing what little money consumers might have left. In that same article, the writers reported, “The treasury also is drawing up strict regulations to apprehend hoarders.” Pending that legislation, people had until the next Friday to turn in their hoards.
Granted, these “hoards” weren't kept by those who had lost jobs or homes. In Kansas City total deposits in the 24 banks opened the previous day (14 March 1933) were estimated at $15,000,000. One bank reported a receipt of a deposit of $80,000 in one-dollar bills. I don't know about you, but I don't have that kind of cash hoarded anywhere. And, in 1933, $80,000 in one-dollar bills was a lot of money.
But, the fear of the federal government breathing down your neck can be palpable, even for those who have little to spare. One woman deposited a large-sized $5 bill, and she hastened to explain, “I haven't been hoarding. My husband's been dead twenty years, but I always air his clothes each spring. I found the bill in his watch pocket.”
With all that said, there is a huge difference between 1933 and 2009. Back in 1933, bank deposits were not insured. Plus, few ordinary folks had portfolios. The market wasn't as accessible then as it is now. Today, bank deposits are insured and many individuals have retirement funds, portfolios and other diversified investments. Despite the downturn in the stock market, banks still offer money market funds with interest and safe investments such as treasury bills abound. There is no reason today to keep money under your mattress.
But, fear – real or imagined – about the future is no different today than it was in 1933. And, the similarities between that year and this year are uncanny. In 1933, Franklin D. Roosevelt had just taken office as a new president, and constituents were as optimistic about what Roosevelt could do in 1933 as some individuals are hopeful today as to what President Barack Obama can do to help this economy.
That same Missouri newspaper reported, “President Roosevelt is feeding the Congressional
mill so much timber that it doesn't have time to do anything else but saw....Still acting on his policy of doing things at once, President Roosevelt has asked Congress to pass a beer bill and do it now. Uncle Sam needs the revenue to help balance the budget and the people need the work the breweries will furnish the unemployed. If we are to have beer, let there be no delay in the program. That is the Rooseveltian way of doing things now.”
Unfortunately, today's problems can't be solved with a beer bill anymore than they were solved with that bill in 1933 (especially during Prohibition!). But, perhaps, we can take these small similarities and large differences to heart as America forges forward. All I can say is hold onto that 401K (cashing it in will hurt you more than help you), have faith in your investment judgments, and clean out those watch pockets more often.