Learning from history

You don't have to be George Bernard Shaw to expect the unexpected from history, but we'd do well to learn from it when dealing with the current crisis

So many crucial events are happening so quickly that by the time I say what I have to say about the cataclysmic U.S. economy, events will have changed for the better or worse.

Let me just say, then, that I’m writing this on October 3, just after the US Senate has passed its version of the $700 billion (some say $805 billion) financial rescue package and the two vice presidential candidates have had their only debate; and right before the House of Representatives gets a second chance to do the right thing.

I don’t know, but I assume, that the House will pass the financial rescue package and President Bush will sign it. I don’t know, but I assume, that whichever presidential candidate is elected on November 4 and sworn in on a cold January morning, will have to abide by whatever the rescue package says. And I also assume that the new Administration will have its hands tied when it comes to fulfilling all those fiscal promises that were made during the long drawn-out election.

But when I look in my crystal ball to figure out what will happen after inauguration day, I check the oracles of the past to see what they said.

So, let’s go back to the Great Depression, which everyone thinks began on Black Tuesday, October 29, 1929 when the stock market on Wall Street crashed. In fact, in the first 10 months of 1930, only 744 US banks failed out of the 9,000 banks that would eventually close their doors. By 1933, the year after Franklin Delano Roosevelt was elected president on the New Deal ticket, depositors had lost $140 billion in deposits.

Many economic historians believe the Great Depression was caused by the American Federal Reserve System’s poor policymaking and inaction which caused the panic that led to the banks’ foreclosure. If the current financial rescue package becomes law, then I presume that politicians and the U.S. Treasury believe they’ve learned from past mistakes. I can’t help but wonder, however, whether regulators will be blamed in court for their poor financial oversight that’s caused our current crisis.

Perhaps the financial rescue package will avert another Great Depression. Hopefully, fewer banks will fail and our deposits will be safe.

But there are various indicators which still don’t bode well. Like the times of the Great Depression, the U.S. automobile industry is currently floundering. Car sales in September this year were the worst since 1993 and down 26.6 percent for the year to September 30, according to the New York Times. 

Like the Great Depression when there was a huge drought known as the Dust Bowl, natural forces also could have an unforeseen impact on any financial rescue. They are called Hurricanes Ike and Gustav and the billions of dollars in physical losses as well as lost revenue, particularly in the oil market, have yet to be calculated and paid.

Then there are the inevitable legal challenges that the financial rescue package will most likely encounter which FDR’s New Deal encountered. Let’s hope history doesn’t repeat itself.