After yesterday's bailout fiasco and stock market drop, what can we expect going forward? And how can we prevent another Great Depression? One thing that people often forget is that the stock market crash of did not turn into the Great Depression overnight. The unemployment rate was still only 8.

So it took three years for the damage to the stock market to ravage the banking sector, and eventually for the air to come out of the real economy. In the meantime, government did far too little. The basic cause of the great crash of '29 was very similar to what we are experiencing today: Supposedly, could not happen again because of "what we learned.

One of the world's reigning experts on the Fed's failures of the early s is one Ben Bernanke, and he certainly hasn't been stingy with the Fed's billions. But the other lesson was the one "we" forgot -- not to let banks and other financial institutions turn themselves into casinos. It is helpful, in the spirit of Tonto's historic interrogatory to the Lone Ranger -- "What you mean, we?

In some respects, the challenge today is more arduous than in because the financial products of this era are even more baroque; the economy is more internationalized, with the U. In , the crash began in the stock market, but only in did banks begin collapsing and the biggest banks never went down.

This time, the crash began in the banking sector, and is only now triggering a stock market collapse. That said, there is still time to prevent a crash from turning into a full-blown depression.

Although the economy is on the edge of an abyss, there is one key political difference that bodes well for the timing. The crash of began in the first year of the Hoover Administration, and for three years Hoover dithered. The crash of occurred at the tail end of an exhausted Bush administration and an exhausted free-market ideology. We only have to make it from October to January for a serious recovery strategy to commence. With some luck and leadership, we can telescope the process of reversing the damage from more than four years in the s to just a few months in early But we do need to prevent the economy from falling off a cliff in the next four months.

And in the near term, there is a dire leadership vacuum compounded by an ideological panic on the part of the Republicans. Not surprisingly, Bush's influence is nil. Treasury Secretary Hank Paulson, as the ultimate investment banker, proved the worst possible emissary for his own proposed deal. All he lacked was the top hat.

Irrational Exuberance in US Stock Market Grasps at 20K for Dow - The Great Recession Blog

Nancy Pelosi and Barney Frank were willing to provide troops for a Wall Street-oriented deal that they didn't much like, but not to bear sole responsibility. And House Republicans at last experienced the accumulated contradictions of their worldview. The reigning ideology of the past three decades has been turned on its head.

Disdain government and give Wall Street everything it wants. The right has tried to paper over how that ideology harms Main Street with the use of tax cuts as all-purpose balm.

But this week, the ideology ran out of gas. House Republicans were left as the party of "no" -- in the apt words of conservative New York Times columnist David Brooks, as "nihilists.

Democrats will shortly become stewards not just of a temporary bailout but of a long term recovery strategy. They might as well begin by pointing us on the right path. That includes direct refinancing for homeowners, direct government involvement in the management of failing financial institutions that are recapitalized by government money, through something like the Reconstruction Finance Corporations of the Roosevelt era; and a transfer tax on stock and bond transactions, both to raise needed revenue and to damp down the kind of speculation that led to the meltdown.

Then Congress can begin the task of regulating the financial system properly. The basic concept is that any financial enterprise capable of taking down the system requires the tight government supervision that in the recent past has been limited to commercial banks.

This is Democratic ideology, if you drill down, just like financial regulation. But lately, that set of core convictions has gotten rusty.

It needs to be reclaimed, and fast. Too many Democrats are still thinking small. But of all the things that are broken, this isn't one.

One other reversal of recent conventional wisdom will be required. Government will need to rely on substantial public spending to pull the wider economy out of the hole. Most of that can be raised by surtaxes on the wealthy and by transaction taxes on speculation, but it will also require a temporary increase in public deficits.

At the time, it felt like I might be over-reaching. If anything I was low. So far, the financial collapse has been an ideological windfall for Democrats. Republicans appear to be flailing. But on January 20, their windfall will become their hurricane -- one that Democrats can use to soar or to crash.

And they do not have much time to get this right. Without a smoking gun, it's unlikely that Republicans will turn on the president. But never underestimate Trump's capacity for self-destruction. The Politics of Austerity Versus Possibility.

Great Depression - Wikipedia

Skip to main content. Home Magazine Blogs Checks: Learning from Robert Kuttner September 30, After yesterday's bailout fiasco and stock market drop, what can we expect going forward? PinIt Instapaper Pocket Email Print. You may also like. What Will It Take to Dump Trump?

An Open Letter to the Republican Leadership. The Triumph and the Muddle. Follow rkuttner Articles By Robert Kuttner. RSS feed of articles by Robert Kuttner. Current Issue Masthead Donate Archive Reprints Renew Subscribe.