The Trouble With Capitalism: The New Deal

I'll be mostly glossing over the next couple of chapters in The Trouble With Capitalism, as the mostly deal with historical background. But I'll doubtless find a few bits worth mentioning. Like the following. (pp. 15 & 16)

[W]hen US President Roosevelt assumed office for the first time in 1933 he was committed to a programme of vigorous intervention by the federal government to stimulate and underpin a recovery in the US economy — the New Deal — based on broadly similar principles to those applied by the Fascist regimes in Italy and Germany....

It is significant that one area where the Roosevelt administration's proposals for state intervention in the economy met with little opposition was support for the financial sector. Nothing had been more fatal to attempts to restore confidence in the United States following the Wall Street crash than the catastrophic collapse in the banking sector, with no fewer than two thousand banks failing in 1930 alone. This prompted the new administration to introduce, as one of its earliest measures, legislation requiring all banks to insure their deposits (up to a maximum level for each one) through a government agency, the Federal Deposit Insurance Corporation, thus guaranteeing small savers against total ruin.¹³ This measure... foreshadowed what was to become, after World War II, an implicit commitment by the state to act as 'lender of last resort' to the banking community — in other words, to come to the rescue of any institution whose failure could be considered a threat to the stability of the financial system as a whole, regardless of how reckless its lending policy may have been. Yet as with so many other moves tending to advance the role of the state in sustaining the capitalist system, this far-reaching commitment was made as a purely pragmatic response to otherwise ruinous market trends. It is scarcely a matter of wonder that those responsible, who were also closely linked to the main beneficiaries, were not inclined to emphasise its ideological implications.

13. In reality the use of an insurance scheme was cosmetic, since the level of premiums paid by the banks never corresponded to the actuarial cost of providing the necessary cover and it has been understood ever since that the federal government will provide whatever support is necessary to avert the collapse of any bank which might entail 'systemic risk'.

In short, the kind of trouble that these policies were meant to avert does sound a lot like the current problems of the sub-prime collapse. Especially that bit about "com[ing] to the rescue of any institution whose failure could be considered a threat to the stability of the financial system as a whole, regardless of how reckless its lending policy may have been."