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“But as it happened, the banks took the taxpayer money and just sat on it.”
This quote comes from an article by Michael Lewis and David Einhorn in Sunday’s New York Times that explains why banks have not used the billions of dollars from the U.S. government to make loans and unclog the credit jam.
The following could describe the same situation: “Instead of seizing upon the RFC [which supplied government loans] as a way to stimulate the economy by expanding credit, many bankers saw an opportunity to shore up their holdings.”
The second example is reported in retired UNC-Chapel Hill history professor William Leuchtenburg’s latest book, Herbert Hoover, published this week by Times Books.
As I was growing up, two names were mentioned, sometimes in the same angry breath, when an adult wanted to talk about times of suffering: Hoover and Sherman. General Sherman was responsible for destroying the South during the Civil War, and President Hoover was responsible for the Great Depression and all the suffering that accompanied it.
Leuchtenburg’s new biography of Hoover would be welcome at any time in our history because it gives a balanced account of his life and his complex character as well as the actual role he played in the events leading up to the 1929 stock market crash (a few months after he took office) and the economic crisis that followed.
{mosimage}As the two quotes at the beginning of this column suggest, Leuchtenburg’s book is an incredibly timely account of the Hoover’s administration’s largely ineffective responses to a breakdown of the financial system. It is timely because it could give us some guidance about what might or might not work in responding to today’s challenges.
For instance, what did not work for Hoover, and has not worked so far in responding to the current crisis, is simply pouring money into banks and the financial system without insuring that the banks put the money to work by opening the credit lines.
Although Leuchtenburg, like most historians, does not hold Hoover responsible for causing the Great Depression, he shows why Hoover’s response to the crisis was a failure. That failure was not simply an unwillingness to use government resources to pump life into the nation’s economy. In fact, as Leuchtenburg shows, Hoover not only pushed for the Reconstruction Finance Corporation with authority to make big loans to banks, but he also promoted other government initiatives that some historians have characterized as precursors of Franklin Roosevelt’s New Deal. But these actions were a “bad-tasting pill” for Hoover, and he never had any enthusiasm for activist government.
Hoover’s primary failure was leadership. In Leuchtenburg’s words, Hoover was not an “effective galvanizer.”
Why was he not the kind of leader the nation needed? Leuchtenburg’s engaging account of Hoover’s life shows its readers how he could be a very successful businessman and brilliant organizer of humanitarian efforts and still be ill equipped to mobilize, inspire, and lead a nation in trouble.
Here is just one example from Leuchtenburg. After describing Hoover’s early days as a very successful mining engineer and businessman in Australia, Leuchtenburg points out that, nevertheless, “Hoover’s frigid demeanor and his Yankee brag earned him as much animosity as his hard-nosed procedures.
Many found him abrasive, abrupt, and overbearing as well as solitary. … He was without humor and, so far as anyone could tell, without emotion. He had few, if any, friends who were equals — then, and for the rest of his days.”
For a leader with a warm demeanor and the people skills, the country would have to wait for Hoover’s successor, Franklin Roosevelt.
But you should not wait to read this entertaining and very timely study of an often overlooked and misunderstood president.
Why Hoover Failed
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