A. Joyce Furfero, Ph.D., J.D.
The following list compares the situation in the United States before the Great Depression of the 1930s with the situation that exists today. It explains the many steps that have been taken to prevent a serious depression in the United States.
Then---Money was tied to gold, and frequently commercial banks having difficulty could not be helped.
Now---Money is managed by the Federal Reserve System with a policy flexible enough to meet most emergencies.
Then---No unemployment insurance or government policy existed to keep employment high.
Now---Many unemployed workers receive unemployment compensation for varying periods, depending on the length of prior employment, with the maximum usually 26-39 weeks. The government also sponsors other safety net programs for individuals and families when their income falls below a certain minimum. These programs include Medicaid, food stamps, and public housing.
Then---Wage contracts were rare, unions were weak, and no legal minimum wage existed.
Now---Wage rates are established through bargaining power of unions and are a part of 2 or 3 year contracts. Also, the federal government has established a minimum wage.
Then---The general policy was that government should keep its hands off the economy. Laissez faire was the basic policy.
Now---The Employment Act of 1946 commits the federal government to act in maintaining maximum employment, maximum output, and price stability. In 1978, Congress passed the Humphrey-Hawkins Full Employment and Balanced Growth Act which commits the government to maintaining equilibrium in the balance of payments accounts.
Then---$l out of $36 of GNP went into government spending and, therefore, expenditure levels could fluctuate more.
Now---$l out of $4-$5 of GNP goes into government spending, which is more steady, not tied to income levels, and doesn't decline during bad times.
Then---No government insurance existed for bank deposits (accounts).
Now---Bank deposits are now insured by the Federal Deposit Insurance Corp. (FDIC) up to $100,000 per deposit per deposit account title.
Then---Long-term loans were very risky to lenders and, therefore, they carried very high interest rates and their volume was drastically reduced during bad times.
Now---A large number of loans to build or buy houses are guaranteed by the federal government through the Federal Housing Administration or the Veteran's Administration. Also, most banks merely originate loans and do not retain them on their books. They sell their loans to one of several government-sponsored secondary market institutions. They sell mortgage loans to the Federal National Mortgage Assoc. (FNMA - Fannie Mae) and the Government National Mortgage Assoc. (GNMA - Ginnie Mae). Savings and loan associations sell their mortgage loans to the Federal Home Loan Mortgage Corp. (FHLMC - Freddie Mac) and credit unions sell their loans to the Credit Union National Mortgage Corp. (CUNMA - Connie Mac). Banks sell their student loans to the Student Loan Marketing Assoc. (SLMA - Sallie Mae) and all depository institutions sell their automobile and credit card loans to investment banks to be repackaged for sale to investors as collateralized mortgage obligations (CMOs).
Then---Borrowing to purchase stocks was not restricted by the federal government and stock market listings were not regulated. The minimum margin requirement to buy stocks was only 10%. "Buyer Beware" was the watchword.
Now---Borrowing is limited by margin requirements established by the Federal Reserve Board, with a minimum margin requirement of 50%. The quality of securities listed on exchanges is investigated by the Securities Exchange Commission (SEC). The SEC also oversees investment banks, dealers, and brokerage houses that deal in listed securities and prosecutes them for fraudulent securities practices. The National Association of Securities Dealers (NASD) oversees investment banks, dealers, and brokerage houses that deal in unlisted securities and prosecutes them for fraudulent securities practices.