DEPRESSION 1929 AND RECESSION 2008, DIFFERENCES

In 1929, after a period of deregulation and free money and almost unlimited speculation and growth, a few banks began to experience losses and liquidity problems. That was very similar to 2008.

But, when the banking system needed liquidity, the Hoover Administration, and the leaders on Wall Street, actually took steps to allow banks to fail. Money supply was actually tightened. That was in 1929.

In 2008, the U.S. government is taking active steps to lower interest rates, to infuse capital into the system, to take bad assets away from bank balance sheets and to inject liquidity into the system.

At least the USA has made a bold step. But then the USA changed it's approach to follow the European idea of investing in "bank stock" or preferred stock of troubled institutions, to increase the capital of the banking system. Bush had opposed this, considering it too intrusive. The "Right Wing" had told him that it would make the government the owner of the banking system. But someone apparently explained that these would be non voting preferred shares and not completely nationalize the system. In fact this is what the USA did in 1929, to infuse money into the system. But the ut now, with panic throughout Asia,Europe and the world, the markets responded moderately to the plan. Perhaps "moderate" is what the system needs. Global financial leaders seem to be teaching and leading the USA in how to fix this crisis.

Even after leaders of the IMF met this week, there was still vast disagreement.There have been years of prosperity, growth, and confidence in this system .

The evolution of "wealth" and "currency" has seen such development. Wealth and currency were once considered land, horses, or cattel. Then precious stones. In each step of the "evolution" of money, it has become more symbolic. The evolution over the past 100 years from wealth being commodities, gold, silver, then to minted coins, such as the "Pound Sterling" currency, to printed money, to plastic money, to electronic transfers, to "swap instruments" that are passed around electronically...the entire system seems to have evolved into a system of symbolic wealth. DANGER. The more symbolic wealth becomes the more it depends upon confidence.

Any business and financial system depends upon CONFIDENCE. That is what is lacking today, in the world, and that is what the markets are telling us. We must remember the great speech of Franklin Roosevelt when he said: "All we have to fear, is fear itself." That is much different from the speeches we have heard from this administration, which as been releasing statements such as "You may lose your job, your home, your local bank!"

We need leadership to bring confidence. Not more fear. After some coaching, President Bush seemed to begin to grasp the concept and later by Sunday, October 12, was saying "I needed to convince the American people that a Wall Street crisis could impact them" and later went on to point out steps that would bring "stability".

Others have had the same type of evolution, from knee jerk talk of meltdown, to emerging reassurance. The head of the IMF started with public statements of how dire the situation was, only to then follow up the next day. Mr Strauss-Kahn was speaking in Washington after talks with US President George W Bush, G7 finance ministers and the World Bank. Earlier, G7 ministers had released the five-point plan to free up the flow of credit, back efforts by banks to raise money and revive the mortgage market. 

"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," said Mr Strauss-Kahn. He later told a news conference: "The first co-ordination between advanced countries and the rest of the world is now on track."

Many industries are still strong and doing well. Oil, gas, energy, wind, food, medical industries are all profitable and growing. But, CONFIDENCE in the financial system is lacking. Perhaps it is because people around the world have simply seen too much greed, too much deregulation, too many abuses, too many failures and foreclosures. All have hurt confidence.

THE REBUILDING OF CONFIDENCE WILL BE THE FIRST PRIORITY OF THE NEW PRESIDENT. Without confidence surely recovery and stability will be hard to achieve. With confidence it will come, but even that will be gradual. It will take time to rebuild confidence in a system that has so evidenced how fragile it has become.