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Why 2008 Feels Like 1932

The parallels with 1932 are breathtaking: billions in bonds defaulting; dysfunctional global credit markets; commodity prices crumbling; stocks in free fall; home foreclosures; rising unemployment; banks teetering; an angry populace; a Republican administration clinging to their discredited trickle down theory; a Democratic contender for President with charismatic oratory skills tapping into the public mood with a message of a New Deal, this time called  “change we can believe in.”

To complete the similitude, we need only a landslide victory for the Democrats in the upcoming election with Obama carrying all but six states.

It is no coincidence that our problems today are a replay of those of 1932, albeit with a less rapid economic descent because of the safety nets like Social Security and bank deposit insurance put in place by President Franklin Delano Roosevelt’s New Deal programs of the 30s.  Each and every form of securities and bank fraud that led to the conditions of 1932 have been perpetrated again today.  The only differences are that this time the Wall Street leverage is larger and the fraud frequently began its life with a triple-A pedigree and a legal opinion from a top tier  law firm registered as a lobbyist with the U.S. government.

To make the point that an unregulated Wall Street has looted our nation twice in an eighty year span and brought it to its knees using the same treachery, I’ve sought out the assistance of the man who previously saved capitalism from the crony capitalists.  Following is my interview with FDR, using quotations from campaign speeches he gave in 1932.

Martens: I am struck by the historic concentrations of wealth and inequalities in income distribution that peaked just before the Great Depression of the 30s and are with us again today.  Does our economic system require a certain equilibrium of wealth distribution in order that workers can afford to buy the goods and services produced by their employers?  Or, to put it another way, is deflation and general wealth destruction the end game when wealth becomes overly concentrated?

FDR: “…our basic trouble was not an insufficiency of capital. It was an insufficient distribution of buying power coupled with an over-sufficient speculation in production. While wages rose in many of our industries, they did not as a whole rise proportionately to the reward to capital, and at the same time the purchasing power of other great groups of our population was permitted to shrink. We accumulated such a superabundance of capital that our great bankers were vying with each other, some of them employing questionable methods, in their efforts to lend this capital at home and abroad. I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.”

Martens: Today, the Republicans call their economic model the “trickle down theory.”  I think you called it “economic royalists.”  It seems pretty clear that extreme wealth concentration is irrevocably linked with busts and depressions, so where did this dangerous theory originate?

FDR: “There are two ways of viewing the Government’s duty in matters affecting economic and social life. The first sees to it that a favored few are helped and hopes that some of their prosperity will leak through, sift through, to labor, to the farmer, to the small business man. That theory belongs to the party of Toryism, and I had hoped that most of the Tories left this country in 1776.  But it is not and never will be the theory of the Democratic Party… Yes, the people of this country want a genuine choice this year, not a choice between two names for the same reactionary doctrine. Ours must be a party of liberal thought, of planned action, of enlightened international outlook, and of the greatest good to the greatest number of our citizens.”

Martens:  We’re just beginning to look upon our current era as two, interrelated, institutionalized wealth transfer mechanisms.  One at the corporate level where the A+B theorem actually became the A+B+C theorem.  That is, A was worker wages; B was raw material and all other production costs; and C was this obscene level of executive compensation which was frequently based on an earnings mirage crafted through secret off-balance-sheet debt concoctions, custom tailored by Wall Street firms. The worker had to pay for A+B+C when they bought the product or service of that company even though C was really just a wealth transfer with no value added to the product or service.  Then we had Wall Street asset-stripping through excessive fees and commissions and churning everything else the worker owned from 401(k)s to bank deposits to home mortgages to annuities to their kids’ college tuition accounts; not to mention usury fees on credit cards.  Going into debt on credit cards was often out of necessity to survive because wages, component A above, was not adequate to pay for components B+C.   How does this compare to the late 20s and 30s?

FDR: “In the years before 1929 we know that this country had completed a vast cycle of building and inflation…Now it is worth remembering, and the cold figures of finance prove it, that during that time there was little or no drop in the prices that the consumer had to pay, although those same figures proved that the cost of production fell very greatly; corporate profit resulting from this period was enormous; at the same time little of that profit was devoted to the reduction of prices. The consumer was forgotten. Very little of it went into increased wages; the worker was forgotten, and by no means an adequate proportion was even paid out in dividends–the stockholder was forgotten. And, incidentally, very little of it was taken by taxation to the beneficent Government of those years. What was the result? Enormous corporate surpluses piled up– the most stupendous in history. Where, under the spell of delirious speculation, did those surpluses go? Let us talk economics that the figures prove and that we can understand. Why, they went chiefly in two directions: first, into new and unnecessary plants which now stand stark and idle; and second, into the call-money market of Wall Street, either directly by the corporations, or indirectly through the banks. Those are the facts. Why blink at them?  Then came the crash. You know the story. Surpluses invested in unnecessary plants became idle. Men lost their jobs; purchasing power dried up; banks became frightened and started calling loans. Those who had money were afraid to part with it. Credit contracted. Industry stopped. Commerce declined, and unemployment mounted. And there we are today.”

Martens: While most attention today is focused on fraud in the issuance of debt securities, another problem impacting job creation is that the investment banks that are responsible for identifying and bringing to public market the innovative businesses that will lead our country forward, create new jobs and higher standards of living, are so riddled with conflicts that we have witnessed trillions of dollars of the country’s savings vanish in flim-flam stock offerings.  The NASDAQ market has lost 67 percent of its value from its peak in 2000 and hundreds of NASDAQ companies that should have never been sold to the public have seen their stocks declared worthless.  How does this compare with the events leading up to the 1929 collapse and the Great Depression?

FDR: “…we cannot review carefully the history of our industrial advance without being struck with its haphazardness, the gigantic waste with which it has been accomplished, the superfluous duplication of productive facilities, the continual scrapping of still useful equipment, the tremendous mortality in industrial and commercial undertakings, the thousands of dead-end trails into which enterprise has been lured, the profligate waste of natural resources…Such controlling and directive forces as have been developed in recent years reside to a dangerous degree in groups having special interests in our economic order, interests which do not coincide with the interests of the Nation as a whole. I believe that the recent course of our history has demonstrated that, while we may utilize their expert knowledge of certain problems and the special facilities with which they are familiar, we cannot allow our economic life to be controlled by that small group of men whose chief outlook upon the social welfare is tinctured by the fact that they can make huge profits from the lending of money and the marketing of securities–an outlook which deserves the adjectives ‘selfish’ and ‘opportunist.’ ”

Martens: Today our Congress, Treasury and Federal Reserve have provided over $1.7 trillion of taxpayer money to shore up the very financial institutions whose lending and trading practices have brought the country to the brink of economic collapse. Most of these firms are the very ones that created complex securities that bundled together thousands of residential mortgages, leveraged the investment, and then sold it in tranches (pieces) to investors.   These are the instruments that are blowing up like land mines all around the globe (Collateralized Debt Obligations/CDOs).  But because these mortgages are bundled together and contractually linked as a group investment, our government appears reticent to interfere with private contracts or the rights of the investors who either bought these investments or made contrary bets against them (Credit Default Swaps/CDS).  As a result, millions of Americans are seeing their homes foreclosed on because they can’t obtain mortgage relief. What would be your thoughts in this regard?

FDR: “Never in history have the interests of all the people been so united in a single economic problem. Picture to yourself, for instance, the great groups of property owned by millions of our citizens, represented by credits issued in the form of bonds and mortgages–Government bonds of all kinds, Federal, State, county, municipal; bonds of industrial companies, of utility companies; mortgages on real estate in farms and cities, and finally the vast investments of the Nation in the railroads. What is the measure of the security of each of those groups? We know well that in our complicated, interrelated credit structure if any one of these credit groups collapses they may all collapse. Danger to one is danger to all.”

Martens: We spoke earlier about concentrated wealth and income inequality.  But we also have the same concentrated industrial power that you had in the late 20s and 30s.  Can you speak to that?

FDR: “Appraising the situation in the bitter dawn of a cold morning after, what do we find? We find two-thirds of American industry concentrated in a few hundred corporations…We find more than half of the savings of the country invested in corporate stocks and bonds, and made the sport of the American stock market. We find fewer than three dozen private banking houses, and stock-selling adjuncts of commercial banks, directing the flow of American capital. In other words, we find concentrated economic power in a few hands…We find a great part of our working population with no chance of earning a living except by grace of this concentrated industrial machine; and we find that millions and millions of Americans are out of work, throwing upon the already burdened Government the necessity of relief…We find the Republican leaders proposing no solution except more debts, more conferences under the same bewildered leadership, more Government money in business but no Government attempt to wrestle with basic problems…I believe that our industrial and economic system is made for individual men and women, and not individual men and women for the benefit of the system.”

Martens: Thank you Mr. President.

PAM MARTENS worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article.  She writes on public interest issues from New Hampshire.  She can be reached at





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Pam Martens has been a contributing writer at CounterPunch since 2006. Martens writes regularly on finance at

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