Financial Crisis: 1929 = 2008?

A frightening domino effect !

The financial world will become afraid of weekends. On March 16, 2008 the U.S. Investment bank Bear Stearns announced it had serious financial problems, and on July 12, it was the turn of Fannie Mae and Freddie Mac, the two biggest mortgage finance companies in the USA. On September 6 Fannie Mae and Freddy Mac announced even worse news, and on September 13 it was the turn of Lehman Brothers and Merrill Lynch. On September 16 (by this time things were moving so fast that each day brought more bad news) the US Federal Reserve announced a rescue package for American International Group, the largest insurer in the USA. There was more bad news on 21 September from investment banks Goldman Sachs and Morgan Stanley, and four days later, from Washington Mutual, the massive savings bank. The financial crises moved overseas, notably to Europe: England, Finland, Germany, Italy and Belgium – a real domino effect!

Is history repeating itself ?

For a long time the collapse of the Wall Street Stock Exchange in 1929, was something that should never be repeated, a historic event that would never happen again. On 29 October 1929 all the shares of companies listed on Wall Street, collapsed. Insolvencies led to bankruptcy. Businesses closed their doors. Day after day millionaires found themselves penniless, but it was the less affluent people, millions of them, who found themselves without work or resources. Is 2008 the same as 1929? Not really, but there are similarities. The major economic crises began at the Stock Exchange in the U.S. A. and then the rest of the world followed. In both 1929 and 2008 the governments had to intervene, coming to the aid of the banks.

Some explanations

Before discussing the differences between 1929 and 2008, some words of explanation. Firstly, what is a Stock Exchange and what does it do? When a business wants to expand, it requires financial investment. Those who would like to invest their money into the business want to know that it is strong and profitable. This is why Stock Exchanges were created. They announce the value of a business and also its condition. Stockbrokers are the intermediaries between companies and the investors. It is their job to predict which businesses will be profitable in the future, and which ones will, for whatever reason, lose money. It is a question of confidence. The business must provide accurate figures describing its condition, and the investor must have confidence in the company’s directors and in their financial advisor. When that confidence disappears, it becomes a crisis, as it did in 1929 and in 2008.

The differences between 1929 and 2008

In 1929 the whole world was surprised by the extent of the crisis. Nobody expected it; everyone believed that prosperity was here to stay, forever. Governments were unable to react, because they didn’t have the money to mitigate the effects of the crisis. Today, their capacity for intervention is much larger. The 700 billion dollars injected by the U.S. to save the banks for the time being, did not exist in 1929. On the contrary, in 1929 there was much speculation on currencies. That is why the monetary system in Germany collapsed. With a million Marks (the German currency of the time) one could hardly buy a loaf of bread. Today, the world monetary systems are very interlinked, which lends stability to all of them.

What is the outcome ?

There is another important difference between 1929 and 2008. Today, national economies are not as self-contained as before. The drawback is that when a large economy, such as the U.S. for example, suffers a crisis, it spreads quicker throughout the world. Nevertheless, one wonders if in spite of the differences between 1929 and 2008, whether or not the scenes of general government and personal impoverishment will be repeated. After all, the financial world is influenced as much by the rules of economic logic as by irrational factors. Undoubtedly bankers have played with the funds of their investors and with virtual money they did not have. They were using funds that love crazy dreams and hate reality. And when the latter wakes up, it can be very harmful. The money that represents actual value, which is not made from illusions, pipe dreams and dreams, transforms itself into nightmares faster than we can calculate.

Tintin, the remedy for the crisis ?

1929? 1929! Yes, he certainly is! On January 10, 1929 Tintin began his career as a reporter and adventurer by departing for the USSR (Russia’s name at the time). It was on that day that the first two pages of Tintin in the Land of the Soviets appeared in Le Petit Vingtième, the children’s weekly supplement in the Brussels newspaper, Le Vingtième Siècle. There are some more pleasant parallels! The events of October 1929 lead to a long economic crisis, destabilizing the world and creating new, often dangerous, situations. The problem led to the Second World War. At the time, The Adventures of Tintin, solidly anchored in currents events, let its readers escape the harsh reality around them and dream of a world filled with justice and a more even distribution of wealth. January 2009 will be the 80 anniversary of the first appearance of Tintin, and in May, the Hergé Museum will open in Louvain-la-Neuve. Thanks to the values he has always displayed– honesty, courage, an adventurous spirit, humanity – and with his rich personality, Tintin will continue to help new generations of readers in difficult times!