Economic Reform

 

A significance of the Great Depression would be that in general, the Great Depression brought great reform to the economy of the United States and prompted the creation of many groups that regulated and established more structure to the United States economy and market.

 

The United States market was very corrupt because there were virtually no external powers that could regulate and check the market. Without anybody/anything to regulate and manage the market, the wealthy and powerful, namely large businesses and corporations, flaunted their superiority by abusing their power. The people placed much faith and confidence into the major corporations because of their credibility and their wealth, so many people would mimic what corporations did in the market (regarding which stocks to buy, sell, etc.) The corporations knew this and began to develop plans on how they could take advantage of their faith to earn more. Large businesses met with each other and decided that they would all purchase many shares of a particular stock at high prices, thus raising the value of the stock. The people began to take notice that all the businesses were buying that single stock and thus were implanted with the false belief that that particular stock held much promise; they thought that the businesses invested only invested in stocks that held much promise and profit. Thus, many people began to demand that stock. At this point, the businesses would turn around and sell their shares of the stock at the increased prices to the people that demanded them, and ultimately profited off of the naivety of the citizens.

 

In addition, there was a general lack of structure and policies in the United States economy, especially in the banks and market. The lack of structure led to bank failures and business bankruptcies. There were many bank failures because of the bank runs (when many investors pull out all of their savings at the same time and banks can’t pay back all that money to all the people) and increased interest rates caused companies to lay off many of their employees. People lost all their money because they didn’t realize that banks don’t carry all the money and because there weren’t policies that ensured them that they would receive all their money back if a bank were to crash. Although that was partially due to public ignorance, if the economy had more structure and regulation than bank and business failure could have been reduced.

 

In order to prevent things like that from happening again, many organizations were created during the presidency of Franklin Roosevelt. For instance, the Securities and Exchange Commission (SEC) was created in 1934 with the purpose of maintaining a fair, orderly, and efficient market as well as to restore confidence in the market. The SEC transformed the United States market into one that was transparent, meaning that investors received accurate information regarding stocks and their profitability and also allowed investors to decide on a fair price for the stocks. With the addition of the SEC, the United States was able to grow into one of the most sophisticated and trusted stock markets today. Another group that was created was the Federal Deposit Insurance Corporation (FDIC). The FDIC was created in 1933 by the Banking Act (also known as the Glass-Steagall Act) with the purpose of preventing another Great Depression, specifically preventing another massive bank failure/bank panics. The FDIC insures savings, checking, and other types of banking accounts The FDIC restored confidence in the banks by ensuring that people wouldn’t lose what they deposited and prevented widespread bank panics by maintaining the public confidence. Although the Great Depression was indeed a time of great depression, it prompted the creation of great economic programs that provide us with stability and confidence today. Thanks to these programs, it is highly unlikely that we will suffer another depression of the same magnitude as the Great Depression.