Abstract
The consequence of relying on market discipline to guide finance is the worst global economic crisis ever. President Roosevelt decides to intervene radically. He stabilises heavily distressed banking by the introduction of deposit guarantee, strong supervision and structural separation. This scheme makes the banks’ liabilities more stable and cheaper.
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- 1.
“But in 1925 and 1926, with Hoover and Miller pushing to tighten credit policy, Strong was able to hide behind the Fed's charter and do nothing.” Kindle, location 4383.
“In the fall of 1925, Hoover decided to launch a campaign against the pervasive atmosphere of speculation that he claimed was infecting the whole country.” Kindle, location 4339 (Liaquat, 2009).
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“Production in almost every country has collapsed—in the two worst hit, the United States and Germany, it had fallen 40%.” (Liaquat, 2009).
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“Most of the banks that failed during the 1920s and 1930s were located in agricultural areas and evidence indicates that the primary contributor to bank distress during the 1920s and 1930s was declines in agricultural income and land values…” (Calomiris & Haber, 2014).
References
Calomiris, C. W., & Haber, S. H. (2014). Fragile by design, Princeton University Press. ISBN 9780691168357.
Liaquat, A. (2009). Lords of finance, Penguin Books. ISBN1440697965.
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Odak, D. (2020). Big Depression—Events Forcing the Regulator’s Hand. In: A Political Economy of Banking Supervision. Springer, Cham. https://doi.org/10.1007/978-3-030-48547-4_3
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DOI: https://doi.org/10.1007/978-3-030-48547-4_3
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