Foreclosure – Ridden America Observes Gloomy Anniversary of the Great Depression

The financial hiccups in Wall Street coincide with the 1929 crash – it is as if foreclosure-ridden America is observing the gloomy anniversary of the Great Depression. That was a time when stock markets had similarly crashed.

During the time of the Great Depression during 28th and 29th October there had been rampant panic gripping the entire nation because the government was reluctant to interfere in financial matters. It did not take any of the steps the administration is taking now to prop up the crumbling financial set up.

Although the situation is being handled differently there are many similarities. Yesterday as of today the warnings were there but missed resulting in falling confidence of the investors. Seventy-nine years have passed since the collapse of the thirties but history does not have a kind word for the policy makers of USA at that time. It is a blueprint to guide the leaders of today about what to do and not to do in the face of a similar crisis. The foreclosure crisis is mirroring history.

At that time of the Great Crash the government took the wrong step of shrinking credit supply by raising interest and import tariffs. It was a clumsy effort. Income tax was increased in the 30’s to balance the budget. Fundamentally the government did just the opposite of what the administration should have done, said Sung Won Sohn of California State University. She said, “When we think about these things today, it’s almost ridiculous and comical what we did back then.”

Today also the government is coming forward but it has failed to fully comprehend the crucial role it has to play in stabilizing the situation. Following 1929 every one out of five banks collapsed causing a huge drying up of available credit. This caused the recession to turn into a depression commented Vincent R. Reinhart, previously director of the monetary affairs of the Federal Reserve. He said, “The Fed just sat by and watched thousands of depository institutions fail. That’s a major difference from the current policy.”

Today the steady flow of increasing foreclosures and reo homes had been giving out warning signals that were ignored or not given importance. Back then warnings had also gone out but not taken seriously. The post World War I period saw stocks rising by 667% driven by dizzy euphoric speculators. It was clear that the wave would crash – it could not be sustained

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