Professor Elam

Now Bush is being compared to Herbert Hoover.   The initial reaction to the crash of 1929 was to assure everyone that it was not as bad as the media portrayed it to be. What was that crash all about anyway?

Back then banks were involved in the securities business.  Eventually the Glass Stegall Act was passed which prevented banks from dealing in securities. Interestingly this provision was repealed in 1999, greed among bankers won out. The real crash of 1929 did not occur until 1930. By March of 19360 everyone realized that the banks had loaned 10 to 1 on securities.  You put up 10 cents the bank loans you 90 cents to invest on Wall Street.  Once the value of the securities or collateral collapsed the banks collapsed. One third of all banks closed along with their deposits. This caused one third of the money supply to vanish overnight.  And that boys and girls was what caused the real crash.

We have much more liberal margin policie today what with options, derivatives, CMOs, CDOs, and malarky passed off as commercial paper. And so the potential as Bear Stearns employess will learn this morning, for calamity is as or greater.  And this is especialy so when the ultimate guarantor is the FED which can only deal with fiat money that is falling in value every day. 

Molly Ivins used to refer to Bush II as Shrub, look for that comparison to be unearthed again in coming weeks.  Such is the nature of public angst looking for a scapegoat, in reality Bush like Hoover probably has little understanding of what his advisors have wrought.