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 Sound
familiar? A banking crisis threatens to ruin the
nation's economy just as a popular new president is elected -- but while
the old president remains in office, and in power. Finally, the federal
government steps in, taking an unprecedented role in what were previously
considered strictly corporate affairs -- and emerges with an expanded
role in the country's financial business.
But the presidents
in this case are not Bush and Obama, and the banking crisis isn't on Wall
Street.
The banking crisis
is in Detroit. The presidents are Hoover and Roosevelt. The year is 1933.
But the parallels
between what happened then and what's happening now are clear, and elements
of the largely forgotten banking crisis of 1933 - largely forgotten until
Darwyn H. Lumley's new book -- may provide insight into current, and future,
affairs.
For example: "The
crucial question in 1933 was whether the national government could prevent
a complete loss of faith in the basic economic arrangements of everyday
life," Lumley writes in his Introduction.
A few pages later,
writing about some of the key players who had roles in creating the crisis,
Lumley, president of the Society of Automotive Historians, adds that they
"had achieved enormous successes, and seemed to personify what was
once proudly known as 'American know-how.' What they did not seem to comprehend
is that with the rewards of their efforts went a measure of responsibility
and accountability."
Again, it sounds
as though he might well have been writing about those on Wall Street instead
of the leaders of the American auto industry, an industry with so much
impact on the American (and world) economy that what started as a local
banking mess in Detroit needed federal intervention to keep from shutting
down the country's economy.
The threat to the
nation was so serious, Lumley writes that the Detroit banking crisis was
the most serious problem faced by a new American president since Lincoln's
election on the eve of the Civil War.
As it was, a "bank
holiday" declared in Michigan - a sort of time out to seek a solution
and prevent massive runs on deposits -- had a domino effect: "…
banks in Indiana were closed," Lumley writes. "Two days later
those in Maryland succumbed to the pressures, and Arkansas banks closed
[after two more days]. Ohio took the same action… [Soon] Alabama,
Kentucky, Nevada and Tennessee followed suit. On the next day the banks
in Arizona, California, Louisiana, Mississippi, and Oregon were closed.
On the same day… the list expanded to includes New Mexico, Washington,
Utah, Texas, Georgia, Idaho, and Wisconsin…" New York and Illinois
were next. By Roosevelt's inauguration day, all banks in the country had
closed.
"In retrospect,
the banking crisis of 1933 did not occur without adequate warning,"
adds the author. In all, Lumley's book details the run up to the crisis,
the details of its handling (and mishandling), and the role it played
in paving the way for Roosevelt's New Deal policies, as well as an aftermath
that left the automakers' reputations in shambles until they (in some
cases reluctantly) responded to Roosevelt's call to provide the "great
arsenal of democracy" for World War II.
Part history book,
part economics text, Breaking the Banks in Motor City isn't necessarily
easy reading, but it is important reading for those interested in the
American automotive industry and in understanding the recent bailouts
and bankruptcies, and Senate committee appearances.
On page 28, there's
a photograph of the Edsel Ford, Alfred P. Sloan Jr. and Walter P. Chrysler
during their visit to Washington, D.C., in April, 1934. The somber looks
on the faces of these heads of Ford, General Motors and Chrysler mirrors
the countenances of Messers. Mullaly, Wagoner and Nardelli on their much
more recent visit to the nation's capitol.
Pity Lumley's book
was not available for them to read a few years ago.
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