Posted by PrestoPundit on 09/25/2008

  The President is following the same bailout playbook used by Herbert Hoover in the early 1930s:

Consider what happened during the 1930s. In the fall of 1931, the
Hoover administration realized that financial institutions no longer
held the trust of depositors, investors, businessmen or each other.
These organizations were losing deposits so rapidly that the financial
system faced complete collapse. These organizations needed to cleanse
their balance sheets of assets, which under current conditions, had
little immediate value and could not be used to raise cash.

January 1932, the Hoover administration created the Reconstruction
Finance Corp., an entity authorized to extend loans to all depository
institutions in the nation. The RFC could accept as collateral a broad
array of assets, including those deemed to be of little immediate worth
but of potential long-term value. During its first year, the RFC lent
nearly $1.5 billion and acquired equity stakes in thousands of
financial institutions. As a share of the capital of the financial
industry, this lending would be the equivalent of roughly $100 billion
today. During its second and third years, the RFC extended loans to
banks and acquired equity positions in financial institutions amounting
to more than $3 billion dollars, equal to roughly $200 billion today.

financial crisis slowed temporarily, but the bleeding continued.
Bankers restricted lending to entrepreneurs, consumers and each other.
Industrial production plummeted. Unemployment skyrocketed. The
financial meltdown resumed, forcing the president to declare a national
“banking holiday.”

It’s worth reiterating the theme of this
historical analogy in stark terms. In the past, we faced a similar
situation and employed similar policies. The policies marked a
deepening of the downturn, not an end to the agony. The policies
signaled the demise of the financial system and the need to construct
new institutions.


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