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National Editorial & Columnists

Great Recession hasn’t been the Great Depression

Quicker market rebound; FDIC protected bank depositors’ funds

Art Cyr
Art Cyr

“The worst financial crisis since the Great Depression,” bas become standard shorthand for the global financial crash and resulting severe recession. September marks the beginning of fall, and also the anniversary of the 2008 benchmark bankruptcy of investment house Lehman Brothers.

We continue to see confirmation that the two economic eras remain different. This year, the Dow Jones Industrial Average surpassed 15,000. Last year, the 13,000 threshold was reached for the first time since 2008. Nevertheless, unemployment remains high, reflected in the unexpected Sept. 18 decision by the U.S. Federal Reserve to keep interest rates low.

The 1929 stock market collapse which ushered in the Great Depression was much more sudden and steep. From a peak of 381.17 on Sept. 3, the stock market lost 25 percent in value over a tumultuous 2 days, and then drifted down to the historic low of 41.22 in July 1932. During the height of the selling frenzy, stocks were traded in volumes not reached again until the late 1960s.

Stocks did not return to the 1929 peak until 1954, in great contrast to our more recent rebound. Great public suspicion as well as hostility toward bankers defined American political life for years.

In the recent crash, many banks failed, and others were saved only by enormous emergency federal fund infusions. The Federal Deposit Insurance Corp., established during the New Deal, has been up to the task of protecting individual depositors.

The principal catalyst of the recent crash was the enormous volume of high-risk debt centered on real estate, originating in the United States but unfolding worldwide. Both funds and fears today can quickly move globally, fueled by electronic transfer networks.

Financial markets have been slowly recovering. The G-20 major nations, in particular central bankers, now engage in continuing coordination of national policies. The controversy over the candidacy of Larry Summers, now withdrawn, to succeed Ben Bernanke as Fed chairman reflects the visible importance of this post.

Banks are now more regulated again, with capital requirements raised along with their rescue. In 2010, the comprehensive Dodd-Frank Act became law, including the important initiative of Paul Volcker to separate commercial from investment banking funds.

The ultimate fate of the “Volcker Rule,” however, remains uncertain. Banking lobbyists have tried ferociously to frustrate this return to regulation. U.S. officials are publicly optimistic, but implementation has been notably slow.

During the Great Depression, American humorist Will Rogers became enormously popular. His homespun rural style provided a self-conscious contrast with the East Coast big-city financiers blamed for the nation’s economic problems.

Inspired by Will Rogers, here are three direct, down-to-earth points.

First, as a worker, take pride. The United States – you and me – has the most productive and largest economy in the world. Our estimated gross national product now totals above $15 trillion.

Second, as a citizen, be active and alert. Government reforms have directly reflected strong public pressures, and fear. There must be serious, sustained public oversight of financial activities.

Third, as an investor, do homework. A good guide is “Security Analysis” by Benjamin Graham and David Dodd, first published in 1934 during the Great Depression, revised and republished regularly since.

You can even read the book while the TV and Internet are on.

Note to readers: Arthur I. Cyr is Clausen Distinguished Professor at Carthage College and author of “After the Cold War” (NYU Press and Palgrave/Macmillan). He can be reached at

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