Sorry – way not enough zeros! The Fed injection into the securities markets in early 1932 was 1 billion dollars, in two $500 million dollar lumps.

The Federal Reserve did not take positive action, wading into the markets with at least a million dollars of security purchases (a big number then) until the winter/spring of 1932, 15-18 months into the crisis. Worse yet, they actually increased the discount rate in October 1931 from 1.5% to 2.5%. The New York Bank of the United States collapsed in early December. By year’s end over 2200 banks had collapsed. Remember the FDIC did not exist.

Backing up to the first half of 1930, Congress passed and Hoover signed, over the objections of 1000+ American economists, the Smoot-Hawley Tariff act which was tremendously protectionist. Other countries quickly retaliated, and from a high in 1929, U.S. exports crashed. It is thought that while Smoot-Hawley didn’t cause the Great Depression, it contributed to it significantly.

There were all kinds of other factors in play, of course, as credit markets imploded in Europe, as major countries such as Britain and Japan went off the gold standard and banks collapsed around the world.

To return to my first point, while the various bailouts of the current administration in Washington may be way less organized than they should be, and while there is still probably a lot of bad stuff to come in the market, I don’t think we can draw exact historic parallels. Many things about the current situation are different. That’s not to say that the history of the Great Depression doesn’t offer us lots of lessons, because I think it does. I particularly think the observation in this podcast that the markets rallied into early 1930 and then declined over the next 18 months to 20% of the October 1929 lows is very sobering. But the historian in me says that we need to be careful and precise about the lessons we learn and the morals we draw.