Posts Tagged ‘Bank Holiday’
“Financial crises are like fireworks: they illuminate the sky even as they go pop”*…
The unpredictable outbreak of the COVID pandemic caught the whole world off guard and brought strong economies to their knees. Has an exogenous shock ever blindsided markets like this before? As Jamie Catherwood explains, of course it has…
On the morning of April 18, 1906, at 5:13 AM, an earthquake registering 8.3 on the Richter scale tore through San Francisco. The earthquake itself only lasted 45-60 seconds, but was followed by massive fires that blazed for four days and nights, destroying entire sections of the city, Making matters worse, the earthquake ruptured the city’s water pipes, leaving firefighters helpless in fighting the flames.
Eventually, the earthquake and ensuing inferno destroyed 490 city blocks, some 25,000 buildings, forced 55–73% of the city’s population into homelessness, and killed almost 3,000 people. In a matter of days, the Pacific West trading hub looked like a war-torn European city in World War II.
The unpredictable nature of San Francisco’s earthquake made it all the more damaging, and had a domino effect in seemingly unrelated areas of the economy…
The stock market fell immediately in the aftermath of the disaster; but more damagingly, British insurers (who covered much of San Francisco) had to ship mountains of gold to the U.S. to cover claims… which led the Bank of England to raise interest rates… which raised them around the world… which squelched speculative stock trading… which led to the collapse of a major Investment Trust (a then-prevalent form of “shadow bank”)…
The fascinating– and cautionary– story of The Panic of 1907, from @InvestorAmnesia.
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As we prioritize preparedness, we might recall that it was on this date in 1933, in the depth on the Depression, that Franklin D. Roosevelt delivered his first inaugural address. Although the speech was short on specifics, Roosevelt identified two immediate objectives: getting people back to work and “strict supervision of all banking and credits and investments.”
The next day, cabinet members joined with Treasury and Federal Reserve officials to lay the groundwork for a national bank holiday, and at 1:00 a.m. on Monday, March 6, President Roosevelt issued a proclamation ordering the suspension of all banking transactions, effective immediately. The nationwide bank holiday was to extend through Thursday, March 9, at which time Congress would convene in extraordinary session to consider emergency legislation aimed at restoring public confidence in the financial system.
It was a last-ditch effort: in the three years leading up to it thousands of banks had failed. But a new round of problems that began in early 1933 placed a severe strain (largely, foreign and domestic holders of US currency rapidly losing faith in paper money and redeeming dollars at an alarming rate) on New York banks, many of which held balances for banks in other parts of the country.
The crisis began to subside on March 9, when Congress passed the Emergency Banking Act. On March 13, only four days after the emergency legislation went into effect, member banks in Federal Reserve cities received permission to reopen. By March 15, banks controlling 90 percent of the country’s banking resources had resumed operations and deposits far exceeded withdrawals. Although some 4,000 banks would remain closed forever and full economic recovery was still years in the future, the worst of the banking crisis seemed to be over.
“Fortune’s bubbles rise and fall”*…
Gordon Gekko talks tulips. Wall Street: Money Never Sleeps / scottab140
Right now, it’s Bitcoin. But in the past we’ve had dotcom stocks, the 1929 crash, 19th-century railways and the South Sea Bubble of 1720. All these were compared by contemporaries to “tulip mania,” the Dutch financial craze for tulip bulbs in the 1630s. Bitcoin, according some sceptics, is “tulip mania 2.0”.
Why this lasting fixation on tulip mania? It certainly makes an exciting story, one that has become a byword for insanity in the markets. The same aspects of it are constantly repeated, whether by casual tweeters or in widely read economics textbooks by luminaries such as John Kenneth Galbraith.
Tulip mania was irrational, the story goes. Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was traded sometimes 10 times a day. No one wanted the bulbs, only the profits – it was a phenomenon of pure greed. Tulips were sold for crazy prices – the price of houses – and fortunes were won and lost. It was the foolishness of newcomers to the market that set off the crash in February 1637. Desperate bankrupts threw themselves in canals. The government finally stepped in and ceased the trade, but not before the economy of Holland was ruined.
Yes, it makes an exciting story. The trouble is, most of it is untrue…
Drawing on ten years of research for her new book, Tulip mania: Money, Honor and Knowledge in the Dutch Golden Age, tells a different story, one that’s just as illuminating, but very different: “Tulip mania: the classic story of a Dutch financial bubble is mostly wrong.”
Like most trends, at the beginning it’s driven by fundamentals, at some point speculation takes over. What the wise man does in the beginning, the fool does in the end.” The world went mad. What we learn from history is that people don’t learn from history. — Warren Buffett, 2006 Berkshire Hathaway annual meeting
* John Greenleaf Whittier
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As we curb our enthusiasm, we might recall that it was on this date in 1933 that banks began to re-open after the “Bank Holiday” declared by the Roosevelt Administration to calm the market after bank runs had threatened the nation’s financial system during the Depression.
“…what remains after one has forgotten everything he learned at school.”*
A guest post from Scenarios and Strategy (here, with an almanac entry)…
The Bureau of Labor Statistics reminds us that it’s smart to stay in school:
But as Calculated Risk reports, while unemployment among the best educated is still lowest, it’s increased as much in percentage terms for them during this current recession as for any other group.
click to enlargeOne notes that all four groups** were slow to rebound after the 2001 recession– not an encouraging reminder if one is hoping for a brisk employment-led, consumption-fueled recovery this time around.
But in some ways more striking is a difference we might expect, but that hasn’t yet emerged. Calculated Risk:
I’d expect the unemployment rate to fall faster for workers with higher levels of education, since their skills are more transferable, than for workers with less education. I’d also expect the unemployment rate for workers with lower levels of education to stay elevated longer in this “recovery” because there is no building boom this time. Just a guess and it isn’t happening so far … currently the unemployment rate for the highest educated group is still increasing.
Clearly, from an individual’s point-of-view, it’s still smarter to get more education than less. But the perturbations of past periods remind us that the gearing between between academic degrees and financial success isn’t always perfectly tight… Indeed, those with sharply-defined professional credentials in fields– e.g, finance– that are unlikely even in the intermediate term (if ever) to recover their bubble-fueled growth rates, may find their advanced degrees at best unhelpful; at worst, downright prejudicial.
Economic recovery and growth will be driven to some large extent by innovation; that innovation will create new– and new kinds of– jobs. Looking even just five years out, much less ten, one has to admit that it’s just not possible to predict what these emergent jobs, nor their requirements, will be. (Consider, e.g., the hottest topic– and job category– in marketing/advertising these days: “social media marketing”… which wasn’t even a glimmer a decade ago, and was just being born five year ago.) This is a challenge for those new to the work force, who have to wrangle the product of their schooling and their personal experience into a shape that can fit the entry-level positions they seek. It is a much bigger challenge for those mid-career who find themselves needy of making a move: these more mature folks have not only to learn new fields, they also have to re-direct the considerable momentum of perception and habit that characterized their old– and they have to do those things, usually, in ways that justify salaries way north of entry-level.
All of which underlines for your correspondent the extraordinary value of a liberal arts education. When one is faced with a “working adulthood” that is one transitional challenge after another, no skill is more valuable than the capacity to adapt. And no capability is more central to that adaptation than the ability effectively and efficiently to learn.
This is precisely what, at its core, a liberal arts education is about: learning to learn.
There are many, many other reasons, rooted in personal and societal benefits, to pursue a liberal arts education, and top support a strong foundation of liberal arts in higher education. But the lessons of the last couple of years– indeed, of the last several decades– suggest that the economic rationale is plenty strong as well…
And besides, it’s fun.
* “Education is what remains after one has forgotten everything he learned in school.”
– Albert Einstein
** To put these cohorts into perspective, the Census Bureau suggests that, of these folks “25 yrs. and over” (in 2008):
– 13.4% had less than a high school diploma.
– 31.2% were high school graduates, no college.
– 26.0% had some college or associate degree.
– 29.4% had a college degree or higher.
UPDATE: Reader JK directs our attention to another treatment of the data, in the NY Times. As he suggests, even more dramatic.
As we revisit our course catalogues, we might recall that it was on this date in 1933 that Congress passed the Emergency Banking Act, the first major legislative step in Franklin Delano Roosevelt’s New Deal program. The sense of urgency was sufficiently high– four days earlier Roosevelt had declared a “Banking Holiday,” closing all of the nation’s banks– that most legislators passed the Act without even reading the single copy that was available for review. The EBA gave the government authority to shutter insolvent banks; that, coupled with the Federal Reserve’s informal-but-explicit pledge to guarantee the deposits of banks allowed to reopen (de facto deposit insurance), eased the crisis of public confidence: within two weeks of banks’ re-opening on March 13, Americans had re-deposited over half the cash they’d withdrawn and hoarded through the period of bank failures that marked the first chapter of the Great Depression. Later that year, the (more considered and embracing) Banking Act of 1933 replaced the EBA, and established such lasting practices and institutions as the FDIC.
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