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FDR and FDIC

Posted By Russ Roberts On December 2, 2008 @ 12:03 am In Financial Markets,Great Depression | Comments Disabled

Tyler at MR [1] quotes a speech about the beginning of the FDIC, that alleges that FDR was opposed to federal deposit insurance on moral hazard grounds. But is it true?

Apparently so. Here is FDR in 1932 on deposit insurance:

It would lead to laxity in bank management and carelessness on the part of both banker and depositor. I believe that it would be an impossible drain on the Federal Treasury to make good any such guarantee. For a number of reasons of sound government finance, such plan would be quite dangerous.

He was on to something. Maybe he would have opposed the creation of Fannie and Freddie as well.

The quote is from a 1932 letter to the New York Sun (the original Sun) that Roosevelt had written in October. The New York Times on October 27, 1936 reported [2] that Republicans were bringing this letter to light because the Republicans, particularly Senator Vandenberg wanted to take credit for FDIC which Roosevelt and the bankers had opposed. The Republicans resented that Roosevelt got credit for everything the government did during the New Deal.

Reading the full 1936 story at the Times requires payment or being a home delivery customer…

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[1] Tyler at MR: http://www.marginalrevolution.com/marginalrevolution/2008/12/the-origins-of.html

[2] reported: http://select.nytimes.com/gst/abstract.html?res=F30813F93D5A1B7B93C5AB178BD95F428385F9&scp=9&sq=roosevelt+federal+deposit+insurance&st=p

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