[Previous entry: "Confessions of a Rationator"] [Next entry: "In a Mexicali Mood"]
02/20/2009: "Is This the Eye of the Storm?"
Roosevelt Calmed Much Rougher Waters
Brian McNeece
Seventy-five years ago our nation changed presidents in the middle of a grave financial crisis. The stock market crash of 1929 was soon followed by dive in commodity prices, factory closings, and wave after wave of bank failures.
For four long months, from November 1932 to March 1933, the nation worked itself into a panic. Those four months perhaps were the most nervous, unsteady months in our government’s history, for in that span the churning forces of the Great Depression picked up power over the becalmed shoals of policy making. Behind the scenes FDR picked his team and began formulating plans to put ballast back into a foundering ship of state.
Unlike Hoover, who was a quiet, self-made man, Franklin D. Roosevelt grew up amid privilege. Handsome, athletic, and intelligent, he went to the best schools and met the best people, traveling to Europe eight times before he was fifteen. Everything came easy to Franklin until 1921, when at 39 years of age he contracted poliomyelitis. During years of recovery, he struggled to teach himself to stand and walk with heavy metal braces for public events. Otherwise, he kept to a wheelchair as a near-paraplegic.
His affliction seemed to soften and deepen his soul, for as time went on, FDR came to champion the common man: the farmer, the factory laborer, the small businessman trying to survive in a toughening world.
In his inaugural address, Roosevelt spoke the famous words, “We have nothing to fear but fear itself.” Inspiring rhetoric, but untrue. There was plenty to fear. Industrial output had dropped by a third in the last three years. Unemployment was 25%. The foreclosure rate today is nothing compared to the loss of property in the winter of 1933. Thousands of banks had failed when frightened depositors demanded their money. To prevent a total collapse of the banking industry, Roosevelt ordered all banks closed for the first week of his presidency. That’s right. No banking transaction occurred in the entire United States for a week.
To calm the nation, Roosevelt cozied up to a microphone and spoke by radio to the nation in the first of his famous “fireside chats.” In his smooth New England voice, he had the ear of millions of Americans as he explained why he had closed the banks and how important it was for Americans to bring their money back to the banking system. His landmark chat to the nation seemed to have stemmed the panic.
Before Roosevelt, Hoover had communicated to the nation by occasional news conferences during which he answered only pre-submitted questions of his choice. In contrast, FDR invited reporters into his office to gather around his desk twice a week and answered questions thrown at him, enlisting the press into his confidence as if they were helping him create policy as he spoke. My mother remembers listening attentively to his weekly fireside chats as a regular family activity.
Roosevelt’s New Deal and the U.S. entrance into WWII are commonly given credit for pulling us out of the Great Depression. After decades of retrospection and dispassionate analysis, a more nuanced opinion has emerged. Roosevelt’s experiments in government intervention into the engine of capitalism were oftentimes contradictory; his personal control over haphazard programs may have simultaneously harmed and helped the nation recover from its prolonged economic hardships.
Today we have another enormously popular, smooth-talking Democratic president following on the heels of a tarnished Republican as inept at communicating extemporaneously as Hoover was. Obama brings cool, studied confidence to very tough times.
Unfortunately, today’s financial hurricane can’t be calmed by weekly fireside chats as we all listen to our radios. Today’s financial mess results from a web of deals so complex that no roomful of experts can claim to understand it. What was precipitated during the Great Depression by a run on the banks by ordinary depositors has been repeated by runs of a very different sort. Subprime mortgages were packaged into tranches and leveraged into highly speculative deals backed by credit default swaps. When financial institutions themselves made a run on those insurance policies, the levers in an over-leveraged system broke.
Closing the banks for a week won’t quiet the currents of chaos in the ethereal heights at which these toxic assets were traded, and nobody quite knows how to prevent the trickling down of difficult times from becoming a torrential flood.
In his first 100 days, Roosevelt and a compliant legislature created and passed fifteen far-reaching programs that entangled government into the business of the nation as never before. Today, Obama hears the siren songs of “stimulus,” of politicians from the left and right exhorting Big Government to throw billions—maybe trillions of dollars into the economy.
May God bless Obama with the wisdom, creativity, and toughness to do the right thing. It ain’t going to be easy flying into this perfect storm.