October 9, 2008 How the world has changed since the Great Depression Play video

(NECN: Greg Wayland) - It was the worldwide financial drought that dried up the soul as it broke the bank. and quickly spread to the whole world. it began, not with a whimper, but a bang. The great crash. A frenzied afternoon on Wall Street. Black Tuesday. October 29, 1929.

Historians say the high-riding twenties, with their wild market speculation made the crash inevitable.

“Stockbrokers were chasing anything they could put chips down. So there was a lot of uneducated betting. And the government basically was keeping its hands completely off anything to do with the grand casino of capitalism.“

Congress and the republican administration of president Herbert Hoover tried to restore the economy with stiff tariffs that wound up strangling global trade. The thirties dawned with Americans doomed to a decade long depression. Broken lives, broken spirits.

One out of every three banks failed and they just disappeared, and we ended up with 25 per cent unemployment and a very big decline in output.

Depositors in banks in the Thirties didn't have any protection and that's why we don't see massive bank runs now. Fear was rampant. Which is why Franklin Delano Roosevelt, having defeated Hoover in 1932, launched his new deal with that memorable phrase.

Then came the reforms, beginning with protections for investors.

Along comes deposit insurance in the 1930s and that has stood us in good stead

The Securities and Exchange Commission was established to oversee Wall Street. and controversial British economist john Maynard Keynes famously diagnosed the role of investor- confidence in heading off troubling market fluctuations.

And so one of the things that he wrote so much about as he created a system of managing the economy that we still employ parts of today was how do we instill confidence when we need it, and how do we temper it when it gets a little too exuberant.

Flash forward to 2008. A crashing Dow. Once again, fear all around.

Last Friday we lost a hundred and fifty thousand jobs. The forecast is for tremendous job destruction in the next several quarters.

But economists and historians say we can forget comparisons to the great depression.

This economy completely different than it was in 1929. It's much bigger, much, much healthier economy than we had in the lead-up to the Great Depression.

On October 6th, the forte' capital investment group calmed its clients' fears with the following historical comparisons. According to forte' , in 1933, unemployment reached 25 per cent. Today it is just over six percent. In the early 1930s, the gross domestic product contracted by 25 per cent. Over the past year, the GDP has grown by more than two per cent.

From 1929 to 1933, consumer prices fell roughly thirty per cent. Today, inflation is positive and growing modestly.

During the 1930s, mortgage delinquencies hit a peak of roughly forty per cent of all mortgages. Compared to just six per cent today. And during the great depression, more than 9000 banks failed. Over the past two years, fewer than twenty banks have failed and depositors have suffered no losses.

Economists such as Boston University's Laurence Kotlikoff joins in scoffing at comparison to the thirties.

“The government is being very active. The Federal Reserve and the treasury -- they're not going to let any banks fail. They've already extended deposit insurance to 250 thousand dollars.”

“Everything is the same as it was a year ago physically, but some people have taken a hit and other people have taken a benefit, which we're not talking about.”

But how did things get this bad? Harvard business school historian Nancy Kane says it's simply a matter of updating the rules.

And financial capitalism as its developed right now has really outgrown the regulatory apparatus we had for it.

I have to say that sitting here in the fall of 2008 that we need more wise regulation than we've displayed over the past two to three years.

Cornelius Hurley heads Boston University's Morin center for banking and financial law.

Communications, particularly instantaneous communications can go a long way to alleviating the mindless, unknowing fear that President Roosevelt alluded to in his inaugural address in 1933.

Laurence Kotlikoff says the recovery will be slow. “We are going to have a recession. We are going to have unemployment, but we're going to get out of this. We've been in tough shape before as a country and we're going to get out of this one as well.”

As for that grim scrapbook of sad depression-era images -- we'll label it, "lessons learned."