In 1928, U.S. Treasury Secretary Andrew Mellon pushed the Federal Reserve Board to aggressively hike interest rates to control inflation and credit-fueled stock market speculation. They did, and, as a result, the New York Stock Exchange suffered the worst crash in its history in October 1929.
Mellon advised President Herbert Hoover to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate … It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.” The Great Depression would follow.
Mellon was the country’s most powerful banker and a prominent industrialist with a gigantic business empire. He was Secretary of the Treasury from March 9, 1921 to Feb. 12, 1932 under Republican presidents Warren Harding, Calvin Coolidge and Herbert Hoover.
Mellon emphasized cutting taxes on the rich. The top marginal tax rate fell from 73% in 1922 to 24% in 1929.
The Great Depression was a result of a crisis of overproduction. The Roaring ’20s experienced an economic boom but too many commodities were produced than could be profitably sold.
During the decade, income inequality exploded. Historian Becky Little notes that “by 1928, the top 1% of families received 23.9% of all pretax income. About 60% of families made less than $2,000 a year, the income level the Bureau of Labor Statistics classified as the minimum livable income for a family of five.” At the beginning of the 1920s, rural America’s economy was already in a depression.
We are socialized to think the boom-and-bust economic cycle is somehow natural. It is irrational, cruel and stupid. There were more than 60 banking crises in the industrialized world between 1805 and 1927.
Increasingly during a crisis, many people turn toward charismatic authoritarian leaders.
In the final week of the 1928 election, Andrew Mellon gave a radio address to promote Herbert Hoover.
He compared Democrats to the new regime in Russia. But in Italy, he said, “the Bolshevik menace was met and vanquished.” Benito Mussolini had not only saved “Italy from any possible danger of economic and social collapse,” but had “improved the well-being of the people of the country.” The Italian government “operated in accordance with established economic laws.”
Many prominent American rightwingers like Mellon were enthusiastic supporters of Mussolini and his regime with the new name of “fascist.”
In 2008, a global financial debacle occurred and Federal Reserve chair Ben Bernanke didn’t intervene until two big banks had collapsed.
What happened? There was a run on a basically unregulated “shadow banking” system.
Deregulation also created a “housing bubble” of “subprime” mortgages by predatory lenders who targeted poorer people who hadn’t qualified for a loan previously.
In Feb. 2009, CNBC commentator Rick Santelli delivered the “rant heard around the world” on the Chicago Mercantile Exchange. As a financial analyst for the business news channel, he denounced the government for “promoting bad behavior” by “subsidiz[ing] the losers’ mortgages” instead of rewarding “the people that could carry the water instead of drink the water.”
He called for a “tea party.”
Santelli didn’t mention the government’s bailouts of Wall Street bigshots. His rant was promoted by Rush Limbaugh, Sean Hannity and the Drudge Report. A movement was born. Implicitly and sometimes explicitly racist, it attracted suburban, white small business and professional types and was funded by libertarian capitalists like the Kochs.
In 2010, they would help the Republicans win their victories in the elections. The Tea Party still exists. It morphed into MAGA.
The current bank troubles grew out of Trump administration deregulation (which was supported by many Democrats). The anti-government tech bros of Silicon Valley now are whining and yipping for the feds to rescue them.
There’s MAGA mega-donor Peter Thiel, the leading Silicon Valley libertarian who promoted cryptocurrency and floating tax refuges beyond the reach of government. His firm promoted a run on the Silicon Valley Bank through social media. In 2009, Thiel wrote that democracy is no longer compatible with freedom. He explained:
“The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of ‘capitalist democracy’ into an oxymoron.”