Effective leadership, circa 1933

Yesterday, I mentioned the banking crisis which came to a head just before Roosevelt’s inauguration in 1933. Here are some further details from David Kennedy’s book, Freedom From Fear: The American People in Depression and War, 1929-1945. It’s a fascinating tale:

The siege had begun, in the manner made sickeningly familiar in the preceding three years, with yet another banking panic. This one started in Michigan, where the governor had declared an eight-day banking “holiday” on February 14, to protect the reeling banks in his state from collapsing. This drastic action in a key industrial state set off tremors throughout the country. Public apprehension about the banking system and disillusionment with bankers were amplified at this moment by revelations emanating from the Senate Banking and Currency Committee hearing room, where committee counsel Ferdinand Pecora was daily extracting scandalous admissions of malfeasance, favoritism, tax avoidance, and corruption from the princes of Wall Street.

Gee. The USA is experiencing a banking crisis right now. Caused, in large part, by reckless and irresponsible behaviour on the part of leaders in the world of high finance.

Plus ça change, plus c’est la même chose. But let us continue:

After having suffered through three years of depression and witnessing more than five thousand bank failures in the last three years, Americans reacted this time with hair-trigger haste and last-ditch desperation. By the thousands, in every village and metropolis, they scurried to their banks, queued up with bags and satchels, and carted away their deposits in currency or gold. They hoarded these precious remnants of their life savings under the mattress or in coffee tins buried in the back yard. Wealthier depositors shipped gold out of the country. Stock prices plummeted again. […]

In state after state, the banking system quivered, buckled, and was saved from final failure only by gubernatorially decreed holiday. Maryland’s banks were closed for three days by executive order on February 24. Similar closings followed in Kentucky, Tennessee, California, and elsewhere. On the morning of inauguration day, the New York Stock Exchange abruptly suspended trading; so did the Chicago Board of Trade. By then governmental proclamation had shut every bank in thirty-two states. Virtually all banks in six others were closed. In the remaining states, depositors were limited to withdrawing a maximum of 5 percent of their money, in Texas no more than ten dollars in a day.

On Sunday, March 5, Roosevelt declared a national banking holiday. The Emergency Banking Act — introduced yesterday — was passed into law on Thursday, March 9.

Meanwhile, Roosevelt had another effective weapon in his arsenal:  the famous “fireside chats”, delivered via radio.

Monday, March 13 [was] the day scheduled for the government-supervised reopening of the banks. On the preceding Sunday evening, at 10:00 P.M. eastern time, tens of millions of Americans tuned their radio sets to listen to the first of Roosevelt’s Fireside Chats. Working from a draft prepared by Hoover’s undersecretary of the treasury, Arthur Ballantine, Roosevelt explained in simple terms what had been accomplished in Washington. He told his listeners “that it is safer to keep your money in a reopened bank than under the mattress.” In a voice at once commanding and avuncular, masterful yet intimate, he soothed the nervous nation. His Groton-Harvard accent might have been taken as snobbish or condescending, but it conveyed instead that same sense of optimism and calm reassurance that suffused his most intimate personal conversations.

On Monday the thirteenth the banks reopened, and the results of Roosevelt’s magic with the Congress and the people were immediately apparent. Deposits and gold began to flow back into the banking system. The prolonged banking crisis, acute since at least 1930, with roots reaching back through the 1920s and even into the days of Andrew Jackson, was at last over. And Roosevelt, taking full credit, was a hero.

Leadership matters. I’m not sure whether Barack Obama is making all the right choices, but at the very least, he’s setting the right tone.

That’s important. Lack of consumer confidence has a devastating impact on the economy. Hence Roosevelt’s famous dictum, “The only thing we have to fear is fear itself.”

Obama is providing the kind of leadership that restores people’s confidence. Even irresponsible financiers can’t destroy a confident nation.


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