The 1920’s and early 2000’s government mentality of non-involvement in the economic system led to the the Great Depression of the 1930’s and the Great Recession of 2008. The laissez-faire attitude in the 1920’s led to the out of control downward spiral of the economy. The greed of mortgage brokers and investors in the 2000’s and the lack of control over them resulted in the 2008 Bank Recession that led to lowered prices in the housing market and mass foreclosures. In both of these cases, government oversight could have prevented the catastrophes that occurred to American’s and businesses. To some, these laissez-faire attitudes were indeed not the cause of the two crises and were actually a mere part of the economic cycle that consists of climbs and crashes. A lack of government oversight during the Great Depression and 2007 banking crisis led to the socio-economic corruption and downfall of the 1920’s and the early 2000’s time period.
The 1920’s were the peak of happiness for most Americans, the roaring 20’s. World War I (1914-1918) had just come to an end and Americans were celebratory due to their loved ones return as well as the success of the US in WWI, the war that would end all wars. New innovations from the war in technology, as well as new social beliefs, brought American’s even more excitement in this climbing roller coaster of happiness. A new form of transport, gasoline automobiles, and Henry Ford’s assembly line gave Americans from a majority of economic situations the ability to venture the vast expanses of the great US as well as new job opportunities in the assembly lines. In addition to the automobile, the victory of the women’s right to vote sparked independence among women and contributed to the celebratory attitude of Americans (Mcelvaine, par.1). The advances in technology such as radios and movie houses, also promoted frivolous spending on things that were not needed, whereas the previous attitude promoted consumption of items that are actually needed. Due to Americans spending more, businesses expanded resulting in higher stock market prices and more investors (Almunia, 225). These skyrocketing stock prices were not regulated and businesses could charge as much as desired for prices of their stock. Because of the sudden rise in stock prices and the increasing desire to own stock, banks were giving out excessive amounts of loans and credit without limitation (Mcelvaine, “Causes of the Great Depression”). Balancing itself on false large sums of money, overproduction, and a lack of regulation resulted in the uphill climb of its peak and plummeting towards the depths of what is known as the Great Depression. Due to the increasing popularity of credit, as seen in the 1920’s, the early 2000’s consisted of spending living better than one’s means. To increase the amount of profit brought in from interest on mortgages, banks and mortgage brokers gave loans to risky consumers who could not afford them,consequently resulting in the defaulting of loans. To continue increasing the amount of money banks and brokers made off of these mortgages, these risky loans were then sold to other investors or brokers. Trade in mortgage backed securities spread risk throughout financial system, creating danger of systemic failure. The greed of financiers increased the amount of faulty loans as well, could sell them in bulk. Both the Great Depression and Great Recession had technical and social innovations that brought excitement to the American’s and the believed assurance that all was well (Egan).
During the time period of the 1920’s and the early 2000’s the distribution of wealth was unevenly spread out, a majority of it resting in the hands of the 1%. During the 1920’s the average household income consisted of $2,500 and the growth in per capita income for the nation as a whole was a mere 9%. As for the 1% of the population the rise in per capita was 75%, much more than the average American. As well as rise in per capita, the savings held by the top 1% was much higher than the average American; 34%. The percentage of American families with no savings was a devastating 80%, a major reason for the extensive use of credit (New Deal Democrat, “1920’s Credit Bubble”). This maldistribution of income between the rich and the middle class grew throughout the 1920’s, as well the spending beyond one’s means rising to ¾ of the population (Cole, 5). During the 2000’s time period the average household income consisted of $55,238, whereas the top 1% income consisted of $9,141,190. Mortgage brokers and top investors slowly rose to this percentage through their risky mortgage profits (Romer, Treatment and Prevention: Ending the Great Recession and Ensuring That It Doesn't Happen Again"). Both had unequal distribution of wealth in the sense that the 1% controlled most savings, while the average American was left squandering. The similarities between the financial standpoints of the 1920’s and early 2000’s time period displays the reason as to why loans were taken by the standard American and credit was used to buy homes and stock, resulting in the crises.
The lack of regulation during the 1920’s and early 2000’s period led to the chaos and loss of control of the economy. The economic problems of the 1920’s were long in the making, and a result of diverse factors that had worsened in the 1920’s. Lack of national economic planning or any other substantial form of active government oversight in the economy ("The Saint Louis Virtual City Project at the University of Missouri – Saint Louis."). The Republican administrations of Warren G. Harding (served 1921–1923), Calvin Coolidge (served 1923–1929), and Herbert Hoover (served 1929–1933) embraced a laissez faire philosophy . The term “laissez-faire” means to be relatively free of government control or regulation. These presidents did not plan, nor did they attempt to regulate banking, stocks, bonds or other aspects of the economy. If regulation by these presidents had been done, then adequate properly analyzed statistics would have foreseen the economic crash that would result in the turmoil of the United States. Up through the 19th and into the 20th century lied the public belief that money was a personal matter and should not be touched by the government. Because of this disconnected belief, the failing economy was left to squander (Mcelvaine, “Causes of the Great Depression). Similarly, during the 2000’s Alan Greenspan and the Bush Administration believed in the laissez-faire attitude as well. Alan Greenspan led the central bank as the housing bubble expanded and advocated deregulation of the economic system. Greenspan, like Hoover, believed that the crisis would eventually even itself out (Andrews, “Greenspan Concedes Error on Regulation”). The Bush Administration played a role in the 2008 bank recession as well, due to Bush’s strong distaste for economic regulation and first two treasury secretaries who lacked the Wall Street expertise required to foresee the Wall Street crash (Lander, “Bush Can Share the Blame for the Financial Crisis). To attempt to solve the 1920’s crash, the Glass Steagal Act was formed to monitor the involvement of commercial banks’ involvement in the investment market to prevent loans for investments. The Dodd Frank Wall Street Reform and Consumer Protection Act was formed to place regulations on banks to prevent them from giving faulty loans (Kobe, “Dodd-Frank Act: CNBC Explains”). The lack of regulation during the 1920’s and early 2000’s led to the financial crises of the Great Depression and Great Recession due to the free terms followed by the investment markets and commercial banks.
According to the opposition the relationship between Great Depression and the Great were merely a part of the economic cycle of rise and falls, not a result from little regulation. President Herbert Hoover of the 1920’s believed that the recession was a dip in the economy that would pass, resulting in his laissez-faire attitude. Regulation was not needed to solve the problems of the 20’s because eventually the problem’s exponentially lessened when WWII began. Alan Greenspan believed that a national recession was due as well as that a recession was necessary every 50 years (Andrews). An example of this “cycle”, is the Panic of 1907 where the market crashed 50% from its previous year and resulted in several bank runs (Chen).
A lack of government oversight during the Great Depression and 2007 banking crisis led to the socio-economic corruption and downfall of the 1920’s and the early 2000’s time period. The free form of the 1920’s and early 2000’s time period led to the ability to do as one pleases. Mortgage brokers and investors in the 2000’s made profit off of risky loans, that if monitored, could have been prevented. The laissez-faire attitude of Hoover and lack of insight into the economy could have prevented and foreseen through extra measures taken by the government.