Tag Archives: banks

LET’S EVEN OUT THE SCALES!

President Roosevelt points to a sign reading “EQUAL RIGHTS TO ALL SPECIAL PRIVILEGES TO NONE,” while a banker and veteran look on in anticipation of more equitable cuts in federal spending.
President Roosevelt points to a sign reading “EQUAL RIGHTS TO ALL SPECIAL PRIVILEGES TO NONE,” while a banker and veteran look on in anticipation of more equitable cuts in federal spending.

 

In 1933, as the United States sought to pull its struggling economy out of the Great Depression, the American people looked for guidance from newly-elected President Franklin D. Roosevelt. FDR promised to reform the damaging actions brought on by his predecessor, President Herbert Hoover, and to improve the nation’s economic state. John Knott’s political cartoon, “Regardless of Dress,” addresses one of the many reforms enacted as part of Roosevelt’s New Deal: specifically, the Economy Act of 1933. This act reduced the amount of federal aid given to banking and veteran programs to equalize treatment of struggling American citizens. Evoking parallels to Andrew Jackson’s populist slogan, “equal rights to all, special privileges to none,” Knott’s illustration underscores the importance of Roosevelt’s impact on veterans and the banks through his New Deal economic recovery programs.

The Great Depression was the period from 1929-1939, during which time the American economy took an unprecedented downturn. After the stock market crash on October 29, 1929, the nation’s economic state began a precipitous decline, as consumer spending and investment plummeted. Job scarcity became such a widespread problem that by 1932, the nation’s unemployment rate had risen to 25% (Baughman “The 1930s: Government and Politics: Overview”). Hoover’s spending approach for aiding the effects of the Great Depression was an inclination to give “indirect aid to banks or local public works projects, but he refused to use federal money for direct aid to citizens” (Hoover “The Gilder Lehrman Institute of American History”). During Hoover’s Presidency, America’s budget deficit ballooned from a $734 million surplus in 1929 to a $2.7 billion deficit in 1932 (Morgan “Deficit Spending”). To compare it to today’s standards, while the 2017 federal government’s deficit rose to $668 billion, an $82 billion increase, that remains only a 12% increase rather than the 663% rise during Hoover’s term (Niv “US Deficit Spending Reached $668 Billion in Fiscal 2017”). Roosevelt’s election in 1932 brought on a series of reforms aimed to counter Hoover’s tactics. In his approach to economic recovery, however, FDR adopted a populist approach for addressing the struggles of the common man.

When Franklin D. Roosevelt took office in 1932, his actions immediately reflected the populist ideals of assisting ordinary American citizens, and his New Deal economic recovery plans were intended to directly help the American people. The First New Deal was a procession of economic reforms as well as a series of national aid and federal programs created with the purpose of bringing the United States out of the Great Depression; furthermore, these initiatives were promised to be implemented within Roosevelt’s first 100 days in office. Because an entire quarter of the US population was unemployed, these aid programs stretched across a swath of occupational categories and social classes (Baughman “The 1930s: Government and Politics: Overview”).

Programs such as the Federal Emergency Relief Act (FERA), which provided $500 million in grants directly to states to “infuse relief agencies with the much-needed resources to help the nearly fifteen million unemployed,” were aimed at mitigating the subsidiary monetary channels that, in the past, had slowed progress of economic improvement (Lumen Learning “Franklin Roosevelt and the New Deal, 1932-1941”).

Given the nation’s poor economic state, however, Roosevelt also aimed to refrain from unnecessary excessive spending. Thus, he introduced the Economy Act of 1933 which cut around $400 million from federal payments to veterans and $100 million from the payroll of federal employees (Morgan “Economy Act of 1933, Special to The New York Times). Not only did this act recognize the unequal distribution of governmental monetary resources, it also helped equalize funding through redistribution to people via Roosevelt’s newly created programs.

Alluding to the spending cuts spurred by the Economy Act of 1933, Knotts’ cartoon highlighted the shared sacrifice that was required for economic recovery, legislated in FDR’s populist policies, and inspired by Jacksonian Democratic themes. The illustration featured three figures: a banker/civilian, a veteran, and FDR. Roosevelt points to a banner hanging above their heads. The sign, which reads, “EQUAL RIGHTS TO ALL SPECIAL PRIVILEGES TO NONE,” points to the reasoning behind the Economy Act of 1933 and FDR’s populist policies. During the Great Depression most US citizens were in need during those difficult economic times, and while FDR recognized the nation’s responsibility to those who served their country, he also stressed their equality with other citizens (The Dallas Morning News “Roosevelt at Chicago”). Drawing on that ideology, Knott suggested Roosevelts’ similarity to another populist president, Andrew Jackson. The quote boldly displayed and pointed to by President Roosevelt reads, “EQUAL RIGHTS TO ALL SPECIAL PRIVILEGES TO NONE.” It is a famous populist slogan widely attributed to Andrew Jackson.

Jacksonian Democrats not only believed in maintaining a strong Federal Union but also in following the conviction that “no one man has any more intrinsic right to official station than another,” as well as in maintaining the assurance that “the already wealthy and favored classes would not enrich themselves further by commandeering, enlarging, and then plundering public institutions” (History.com Staff “Jacksonian Democracy” and Gale “Andrew Jackson”). By cutting their previous federal funding allowances, the aid given to veterans and the banking system was equalized by FDR when compared to other assistance programs. His actions were based on his affirmation of equal treatment of citizens and are directly and were comparable to Jackson’s views. Because veterans and banks were receiving significantly more aid compared to other institutions and groups, Roosevelt cut their funding, opening more opportunities for other struggling parties to receive monetary assistance, thus equalizing government aid program fairness (Knott “Regardless of Dress”).

“Roosevelt in Chicago,” an editorial that accompanied Knott’s cartoon, spelled out the aforementioned policies regarding veterans and banks alike and described Roosevelt’s take on the need for equalizing aid (re)distribution. The editorial discussed FDR’s emphasis on “the plain duties of citizenship,” another reference to Roosevelt’s Jacksonian-inspired populist agenda for economic recovery. Roosevelt’s New Deal ushered in the dawn of a new American economic era in both its policies and reforms (The Dallas Morning News “Roosevelt at Chicago”).

The Great Depression was a devastating period of American history for all US citizens. As the economy struggled, Roosevelt was not only faced with how to bring prosperity to the nation but also how to treat all social classes under his altering reforms. His actions highlighted the repetition of history and the new takes future leaders are able to implement to adjust for the times.

 

Works Cited

“Andrew Jackson.” Encyclopedia of World Biography, 2nd ed., vol. 8, Gale, 2004, pp. 168-   172. Gale Virtual Reference        Libraryhttp://link.galegroup.com/apps/doc/CX3404703247/GVRL?u=txshracd2598&si    d=GVRL&xid=891df37f. Accessed 3 Apr. 2018.

Elis, Niv. “US Deficit Spending Reached $668 Billion in Fiscal 2017.” The Hill, 9 Oct. 2017, thehill.com/policy/finance/354542-us-deficit-spending-reached-668-billion-in-fiscal-2017.

History.com Staff. “Jacksonian Democracy.” History.com, A&E Television Networks, 2012, www.history.com/topics/jacksonian-democracy.

Hoover, Herbert. “The Gilder Lehrman Institute of American History.” Nat Turner’s Rebellion,1831 | Gilder Lehrman Institute of American History, www.gilderlehrman.org/content/herbert-hoover-great-depression-and-new-deal-1931–1933.

Knott, John. “Regardless of Dress” The Dallas Morning News, 4 Oct. 1933.

Lumen Learning. “Franklin Roosevelt and the New Deal, 1932-1941.” Lumen, Open SUNY Textbooks, courses.lumenlearning.com/suny-ushistory2os2xmaster/chapter/the-first-new- deal/.

Morgan, Iwan. “Deficit Spending.” Encyclopedia of the Great Depression, edited by Robert S. McElvaine, vol. 1, Macmillan Reference USA, 2004, pp. 226-228. Gale Virtual ReferenceLibraryhttp://link.galegroup.com/apps/doc/CX3404500134/GVRL?u=txshracd2598&si=GVRL&xid=6476eefb. Accessed 3 Apr. 2018.

Morgan, Iwan. “Economy Act of 1933.” Encyclopedia of the Great Depression, edited by Robert S. McElvaine, vol. 1, Macmillan Reference USA, 2004, pp. 268-269. Gale Virtual Reference        Libraryhttp://link.galegroup.com/apps/doc/CX3404500154/GVRL?u=txshracd2598&sid=GVRL&xid=b0474e7f. Accessed 3 Apr. 2018.

“Roosevelt at Chicago.” The Dallas Morning News, 4 Oct. 1933.

Special to The New York Times. (1932, Dec 08). Text of the president’s message calling on congress for a curb on spending. New York Times (1923-Current File) Retrieved from   http://ezproxy.lib.utexas.edu/login?url=https://search.proquest.com/docview/99804009?a         ccountid=7118

“The 1930s: Government and Politics: Overview.” American Decades, edited by Judith S. Baughman, et al., vol. 4: 1930-1939, Gale, 2001. Gale Virtual Reference        Libraryhttp://link.galegroup.com/apps/doc/CX3468301167/GVRL?u=txshracd2598&sid=GVRL&xid=87193b62. Accessed 3 Apr. 2018.

The Credit Crunch

INKCINCT Cartoons, "The Credit Crunch"  A car crash occurs between subprime mortgage market, private investors, and the financial sector.
INKCINCT Cartoons, “The Credit Crunch”
A car crash occurs between subprime mortgage market, private investors, and the financial sector.

In 2008, a large number of Americans were fighting staggering unemployment, plummeting house prices, and a complete meltdown in their retirement accounts.  Naïve homebuyers and controversial banking practices had created the biggest financial catastrophe since The Great Depression.

In the years leading up to 2008, the financial sector utilized loose lending practices to qualify individuals with low income and poor credit to purchase homes.  This collection of homebuyers was known as the subprime mortgage market (“U.S. Housing Bubble and Credit Crisis in the Late-2000s”, 340).  By extending credit to an unqualified subprime mortgage market, the banks created an artificial surge in demand for housing, consequentially inflating house prices (Arner, 92).  To further fuel demand for their mortgage products, the banks provided options for small down payments and low introductory rates (“U.S. Housing Bubble and Credit Crisis in the Late-2000s”, 340).  These types of lending tactics enabled individuals in the subprime mortgage market to buy bigger homes than they could actually afford (Arner, 92).  As introductory rates began to expire, these homeowners were unable to make their full monthly payments and the number of foreclosed homes rose at a startling rate (Hirsh, 38).

The increasing foreclosures led to a degradation of the entire real estate market and caused downward pressure on housing prices overall (Arner, 93).  Suddenly homes were not worth enough for banks to recoup their loans amounts from the perpetually growing defaulters in the subprime mortgage market (“U.S. Housing Bubble and Credit Crisis in the Late-2000s”, 340). Accordingly, the banks were forced to take huge accounting losses for their failed loans (“U.S. Housing Bubble and Credit Crisis in the Late-2000s”, 340).  The resulting downturn in the housing, financial, and consumer sectors had a ripple effect throughout the entire economy.  Consequently, stocks and bonds of just about every company tanked.  Small investors who were invested in mutual funds of stocks and bonds through their retirement accounts, college funds, and pensions were unexpectedly devastated (Arner, 96).  Government officials were afraid of the economic ramification of the financial sector collapsing and the lack of consumer protection available to subprime mortgage borrowers (“U.S. Housing Bubble and Credit Crisis in the Late-2000s”, 341).  Therefore, they offered assistance programs to the subprime mortgage borrowers and created enormous bailout plans for the vast majority of the financial sector (“U.S. Housing Bubble and Credit Crisis in the Late-2000s”, 341).  On the other hand, many small investors were losing a large part of their life savings and were left to deal with the consequences on their own.

The article, “More Zeroes for Investors,” described the multi-billion dollar loss in the stock market caused by the subprime mortgage crisis.  Specifically, it highlighted the large percentage drops in each sector of the market and the impact of those declines on small investors (Craig, 1). The editorial provided an anecdote from a non-profit worker, Barron Segar, who was too afraid to look at the computer due to the falling mutual fund prices but considered buying more funds if the downtrend continued (Craig, 2).  It also described a 59 year-old doctor, Roy Steiman, who planned to purchase additional shares in Bank of America and mentioned, “If Bank of America [failed, we’d] be in big trouble” (Craig, 1).  Through those examples, the article emphasized the hopes of people like Mr. Steiman and Mr. Segar as they looked to recoup their losses by purchasing additional shares at lower prices.  The editorial also underscored the notion that these individuals were undoubtedly afraid of further losses.  Mr. Segar was quoted as saying, “I think the biggest lesson that investors [learned was] that there [was] no safe haven” (Craig, 2).  Another example of investor fear in “More Zeroes for Investors” was a story about Mr. Segar’s father.  He was described as a 76-year old man who was heavily invested in financial stocks due to his employment within a bank trust department (Craig 2).  It could be inferred that he was nearing retirement age and depended on those investments to provide him support.  Mr. Segar expressed concern for his father in the article and mentioned, “My dad [was] going to fall over when he [received] his next statement” (Craig 2). The article concluded by noting other areas of the market which were likely to be pushed down and provided a forecast for the general downtrend in the economy to linger (Craig, 2).  In short, as there was more pain ahead for the stock market, small investors were expected to continue to get hurt.

The political cartoon, “The Credit Crunch” also portrayed the suffering of small investors as it illustrated the interaction between the three primary participants in the 2008 credit crisis:  “small investors”, the “subprime mortgage market”, and the “finance sector”.  The involvement of these groups was shown through a car accident in which the small investors were crushed in between the subprime mortgage market and the finance sector. Though there were several elements that contributed to the 2008 credit crunch, the artist placeed an emphasis on the general obliviousness of the subprime mortgage market and the cold-hearted greed of the finance sector.

In “The Credit Crunch”, the finance sector was driven by a pointy-nosed chauffeur inside of a large Roll Royce.  This representation alluded to the enormous amount of wealth generated by the banks using their loose lending policies.  It also underscored the greed that was involved in carrying out their deceptive practices.  The subprime mortgage market was shown through what appeared to be a lone driver in a giant SUV.  This portrayed the consumerist nature of the subprime mortgage market participants and their inclination to purchase items that were larger or more expensive than necessary. The finance sector was depicted as leading the pack and could be seen as the forerunner in the crisis.  The subprime mortgage market was thoughtlessly following the path laid out by the finance sector unaware that it caused small investors to suffer.

The individuals shown inside the cars also contributed to the message of the artist.  The finance sector participants were shown with emotionless, forward looking faces, which indicated their apathy towards the individuals they had hurt and the general unawareness of the destruction they had left in their path.  The individual shown inside the subprime mortgage market vehicle looked young and clueless.  His youthful demeanor and wide-eyed smile indicated his naïve nature and obliviousness to the damage caused by his actions.

Both the subprime mortgage market and finance sector were illustrated as larger vehicles that were seemingly damage free.  Meanwhile, the artist portrayed the small investors with a tiny automobile that was completely crushed and had a life-less hand of one its passengers hanging out from the side.  It appeared that there were many passengers inside the small investors’ car; however, they were shown without faces in order to possibly hide the emotional turmoil they encountered. Through an otherwise humorous medium of a political cartoon, the author emphasized the seriousness of the anguish and devastation felt by small investors during the 2008 credit crisis.

The article, “More Zeroes for Investors”, and the cartoon, “The Credit Crunch” both highlighted the damage the banks and the mortgage market created for the small private investors during the 2008 Credit Crisis. The excessive borrowing, lending, and fear in the markets that were seen in the modern credit crisis echoed the events that led up to The Great Depression (Arner, 98). The 1931 Knott cartoon, “Urgent Letter to Santa Claus” and the accompanying editorial, “Panic or Prosperity” referred to the extreme borrowing of Germany following the First World War that ultimately led to the disastrous Great Depression. Likewise, the concept of over-lending and over-borrowing was present in the modern credit crisis between the banks and the mortgage market.

Works Cited

“Credit Crunch.” The Encyclopedia of Money. Larry Allen. 2nd ed. Santa Barbara, CA:   ABC-CLIO, 2009. 92-93. Gale Virtual Reference Library. Web. 17 Nov. 2015.

Hirsh, Michael. “Mortgages And Madness.” Newsweek 151.22 (2008): 38-40. Academic Search Complete. Web. 17 Nov. 2015

“U.S. Housing Bubble and Credit Crisis in the Late-2000s.” Corporate DisastersWhat   Went Wrong and Why. Ed. Miranda H. Ferrara and Michele P. LaMeau. Detroit: Gale, 2012. 339-342. Gale Virtual Reference Library. Web. 17 Nov. 2015.

Arner, Douglas W. “The Global Crisis of 2008: Causes And Consequences.” International Lawyer 43.1 (2009):91-136. Academic Search Complete. Web. 17 Nov. 2015.

“Credit Crisis: Market Effects | Investopedia.” Investopedia. N.p., 18 Nov. 2008. Web. 17 Nov. 2015.

“What Is a Subprime Mortgage?” Investopedia. N.p., 02 Sept. 2007. Web. 17 Nov. 2015.

“The Credit Crunch.” INKCINCT Cartoons. N.p., n.d. Web. 17 Nov. 2015.

Craig, Susanne. “As Subprime Write-Downs Top $100 Billion, Dow Industrials Drop 306.95 Points; Small Investors Brace for More.” Wall Street Journal 18 Jan. 2008, Eastern ed., sec. 15: 1-2. EBSCO eBook Collection. Web. 12 Dec. 2015. <http://web.a.ebscohost.com.ezproxy.lib.utexas.edu/ehost/detail/detail?sid=121db932-d031-4e4f-aa5f-64985dccdfef%40sessionmgr4002&vid=0&hid=4114&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=28450284&db=a9h>