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TIME: Almanac of the 20th Century
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TIME, Almanac of the 20th Century.ISO
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1930
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1994-02-27
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<text>
<title>
(1930s) Banking Crisis
</title>
<history>
TIME--The Weekly Newsmagazine--1930s Highlights
</history>
<link 08166>
<link 06829>
<link 00672>
<link 00030><article>
<source>Time Magazine</source>
<hdr>
Banking Crisis
</hdr>
<body>
<p> [Roosevelt had abruptly reversed the large Republican margins
of the 1920s, winning 42 states and nearly 60% of the popular
vote, and forging the coalition of the north-eastern industrial
states and the South that was to dominate national politics for
almost the next half-century.
</p>
<p> By Election Day, notwithstanding any efforts to overcome it,
the Depression had just about worn itself out. The stock market
had begun to pick up in the fall, and was dubbed the "Roosevelt
market." Then, during the interregnum between November and the
March inauguration (moved back to January thereafter) a crisis
arose in the country's largely unregulated banking system. The
incoming and outgoing Presidents, hampered by personal dislike
and political misunderstandings, could not agree on an interim
policy. By the time Roosevelt took office, the wave of bank runs
and closings that began in Michigan had spread frighteningly
across the country. The need for immediate action was acute.]
</p>
<p>(February 27, 1933)
</p>
<p> A tall man with a $10 bill in his hand stood surveying an
apple vendor's stand on Detroit's Woodward Avenue one day last
week. "It's a shame," he said, "that an apple won't fit a pay
telephone. I've been trying to call my wife since last night to
tell her I wouldn't be home." After he explained that he was
unable to get his bill changed anywhere in Detroit, the apple
vendor loaned him a nickel...
</p>
<p> Citizens in the fourth largest U.S. city and in most of the
other Michigan cities and towns last week found themselves in
much the same predicament. Governor William A. Comstock's
banking moratorium, unprecedented in scope, had suddenly cut
them off with the cash they had in their pockets. People were
chary of giving small bills for big ones. By the time the
moratorium was modified after two days to permit withdrawals
up to 5% of deposits, the scarcity of money was acute.
</p>
<p>(March 6,1933)
</p>
<p>Behind the Michigan moratorium, the effects of which were just
beginning to be felt elsewhere, lay three grinding years of
Depression and 5,096 bank failures throughout the U.S. Nevada
had clapped its bank doors shut in self-protection, Louisiana
had taken an extra-legal breathing spell. Instead of being
permitted to recover from the big Michigan shock, Public
Confidence was last week knocked groggy by fresh blows.
</p>
<p>(March 13, 1933)
</p>
<p> Thursday, March 2, and New Orleans was completely recovered
from its Mardi Gras hangover--recovered as if struck by a
douche of cold water, for that morning all Louisiana banks had
been closed by proclamation. Hundreds of distracted visitors
found they could not get funds to get home.
</p>
<p> Came Friday morning and Citizen Roosevelt awoke from the sleep
of the elected to hear that 22 states and the District of
Columbia were in the depths of banking restrictions and
moratoria.
</p>
<p> Noontime and bankers knew that the public was taking cash out
of New York banks, savings banks in particular. A savings bank
in Newark had already been besieged. Now in 42nd Street opposite
Grand Central Station a crowd gathered in the magnificent
Byzantine banking hall of the Bowery Savings Bank, largest
private savings bank in the world, one of the oldest mutual
savings banks in the U.S., famed for its conservatism and
strength. Good natured but eager, boot-blacks, Jewish matrons,
silk-stockinged stenographers and shawled immigrants carried off
cash from the paying windows. Three o'clock and the bank closed
with a mob still at its doors. The banking disease had reached
Manhattan, heart of the nation's banking system.
</p>
<p> Before dawn that Saturday morning there were moratoria in
Iowa, Missouri, Minnesota, with others following fast. Before
10 a.m. the closing of all the security and commodity exchanges
of Chicago and New York had been announced--all except the
Livestock Exchange in Chicago, for livestock is perishable, its
distribution must go on. By that hour the three-block-long
factory of the American Bank Note plant in The Bronx was roaring
with activity, with police at the doors to keep the inquisitive
away.
</p>
<p> Not until nearly midnight when the deliberations of the
Treasury conference had been well mulled over, did President
Roosevelt take his first direct action on the banking situation.
Calmly in his study, with a fresh cigaret carefully placed in
ivory holder, he proclaimed--under the Trading-with-the-Enemy
Act of 1917 which gave the President power to regulate foreign
exchange and prevent hoarding:
</p>
<p> 1) From March 6 to 9 inclusive, a complete holiday for all
banks in the U.S.
</p>
<p> 2) Power for the Secretary of the Treasury to make specific
exceptions to this rule.
</p>
<p> 3) Power for the Secretary to direct Clearing Houses to issue
script.
</p>
<p> 4) Power for the Secretary to allow the establishment by banks
of trust accounts ("cash box" deposits).
</p>
<p> The nation took a breathing spell. President Roosevelt slept
and rose to tell the Governors of 25 States, summoned a month
before to the White House, how they must work as henchmen of the
Federal Government to make its banking plans--not yet worked
out--effective everywhere throughout the nation.
</p>
<p> Meanwhile ten times ten thousand men, women and children had
gathered before the inaugural platform on the East Front of the
Capitol. They blackened 40 acres of park and pavement. They sat
on benches. They filled bare trees. They perched on roof tops.
But for all the flags and music and ceremony, they were not a
happy, carefree crowd. Their bank accounts were frozen by what
amounted to a national moratorium. Many of them wondered how
they could raise the cash to get home. Their mass spirits were
as sombre as the grey sky above. Yet they remained doggedly
hopeful that this new President with his New Deal would somehow
solve their worries and send them away in a brighter mood.
</p>
<p> Instantly President Roosevelt, without hat or overcoat in the
chill wind, swung around to the crowd before him, launched
vigorously into his inaugural address. His easy smile was gone.
His large chin was thrust out defiantly as if at some invisible,
insidious foe. A challenge rang in his clear strong voice. For
20 vibrant minutes he held his audience, seen and unseen, under
a strong spell. Only occasionally was he interrupted by cheers
and applause.
</p>
<p> "My Friends!" he began. "This is a day of national
consecration...The only thing we have to fear is fear itself--nameless, unreasoning, unjustified terror which paralyzes
needed efforts to convert retreat into advance.
</p>
<p> "Our common difficulties concern, thank God, only material
things. Values have shrunk to fantastic levels; taxes have
risen; our ability to pay has fallen; government of all kinds
is faced by serious curtailment of income; the means of exchange
are frozen in the currents of trade; the withered leaves of
industrial enterprise lie on every side; farmers find no markets
for their produce; the savings of many years in thousands of
families are gone. A host of unemployed citizens face the grim
problem of existence. Only a foolish optimist can deny the dark
realities of the moment.
</p>
<p> "Primarily, this is because the rulers of the exchange of
mankind's goods have failed through their own stubbornness and
their own incompetence, have admitted their failure and
abdicated. Practices of the unscrupulous money changers stand
indicted. True, they have tried, but their efforts have been
cast in the pattern of an outworn tradition. Faced by failure
of credit, they have proposed only the lending of more money.
</p>
<p> "Stripped of the lure of profit by which to induce our people
to follow their false leadership, they have resorted to
exhortations, pleading tearfully for restored confidence. They
know only the rules of a generation of self-seekers.
</p>
<p> "The money changers have fled from their high seats in the
temple of our civilization. We may now restore that temple to
the ancient truths."
</p>
<p> [The legislation that followed legalized the President's
action ex post facto. It also, by allowing the Federal Reserve
to issue currency backed only by its own obligations,
effectively took the U.S. off the gold standard. The emergency
steps appeared to work, if only on the strength of the
President's confidence.
</p>
<p> There began the series of reassuring Roosevelt radio talks
that became known as "fireside chats."]
</p>
<p>(March 20, 1933)
</p>
<p> Last Sunday evening President Roosevelt sat comfortably down
before a microphone in his upstairs study at the White House,
ground a cigaret stub and proceeded to broadcast to the nation
a neighborly 15-minute talk on banks & banking. On the morrow
the country's sound banks were to start reopening. During the
sensational week they had all been closed by his decree, the
President had done some extraordinary things. Now in A.B.C.
fashion he wanted to explain his actions to his countrymen and
persuade them, by simple word and confident voice, not to repeat
their own extraordinary behavior of the week prior when all at
once they attempted to convert their bank deposits into
currency, precipitating crisis.
</p>
<p> "My friends," began the easy Rooseveltian voice in countless
homes, "...when you deposit money in a bank, the bank does not
put the money into a safe deposit vault. It invests your money,
puts it to work...What, then, happened? There was a general
rush, so great that the soundest banks could not get enough
currency to meet the demand...It was then that I issued the
proclamation providing for the nationwide bank holiday...
</p>
<p> "There is no occasion for worry. The banks will take care of
all needs--except of course the hysterical demands of
hoarders. When people find they can get their money, the phantom
of fear will soon be laid. I can assure you it is safer to keep
your money in a reopened bank than under the mattress."</p>
</body>
</article>
</text>