Observations on Credit and Surveillance

by @matthewstoller.
by @matthewstoller.
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  • Before the Greenspan/Bernanke Put, There Was the Mellon Put

    The biggest stock market crash in American history took place in late October of 1929. I was wondering what kind of political recriminations took place, and sure enough, the Congressional record did not disappoint.

    Almost immediately after the crash, members of Congress began looking to blame the other side, quickly turning the crash into a partisan pissing match. On November 1, 1929, while debating the Hawley-Smoot tariff, Republican and Democratic Senators went at it. Democrats said that since the bull market of the 1920s had been dubbed the “Coolidge market” and then the “Hoover market”, the crash should also be laid at the feet of then-President Hoover. Boom.

    Republicans responded that it was absurd to blame the President for the stock market crash, and wryly attacked the head of the DNC, John J. Raskob. Raskob was a former General Motors executive who had founded GMAC and popularized installment lending to buy automobiles, and was about to form a quasi-mutual fund company to let workers invest in the stock market with weekly contributions (and installment credit as partial financing so workers could lever up their investments). Raskob was quite a quipster, and upon announcing his new venture in May of 1929, said “I have all the money I want and now I want to help a lot of other people make some.” His company never got off the ground, but Republicans argued this was irresponsible and led to speculative fever.

    The most interesting, and only persuasive structural argument that someone was actually *at fault* for the crash was from Senator Alben Barkley. Alben, later Vice President under Truman and the first VP to be nicknamed “Veep”, was a progressive Wilsonian Democrat from Kentucky who had supported the Federal Reserve Act. He pointed out that Secretary of the Treasury Andrew Mellon and then the President had pushed call loans to support stock market speculation. Mellon had even threatened to resign from the Fed Board (yes, the Treasury Secretary was on the Fed board in those days) if the Fed moved to clamp down on speculation by increasing the discount rate on those kinds of loans. Hoover then reaffirmed the value of stock broker loans, and the market surged.

    This kept the market from crashing for a time, but it did not end well.

    So before Greenspan made his “Greenspan put” in 1987, which was implicit backstopping of the stock market by the Fed, there was the Mellon put.

    image

    Just a few years later, Andrew Mellon was nearly impeached, withTexas Congressman Wright Patman laying down articles of impeachment accusing Mellon of using his Treasury position to benefit Mellon oil interests. He was allowed to resign and become ambassador to England. No jail time, just a different high-level title.

    Banksters gonna bankster.

    Plus ca change.

    • February 7, 2014 (6:33 pm)
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