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4 Responses:

  1. How is this possible?

    • Thomas Lord says:

      How is this possible?

      Amadeo Giannini, being not an idiot, loaded the Bank of Italy's vault into a garbage wagon, disguised it with garbage, and got it the hell out of San Francisco after the Great Quake but before it could become super-heated in fire. Other banks' vaults, left behind, became so heated in the conflagration that had they been opened too soon afterwards, the cash they contained would have combusted with the inrush of oxygen.

      Thus, Giannini's bank was one of the first in the region with enough cash liquidity to begin financing the recovery from the quake. Later, he merged with the Bank of Los Angeles to form the Bank of America.

      By the time of the banking crisis in 1933, B of A was arguably insolvent. It was closed, and had some difficulty re-opening. (B of A was hardly alone but it was such a large concern it made a special case. "Too big to fail" is nothing new!)

      FDR effectively took over all banks with the Emergency Banking Act of 1933. He pulled some strings to help Giannini get B of A open again.

      Soon after, FDR also suspended domestic convertibility and even private ownership of gold, thus allowing an internal devaluation of the dollar.

      The instant effect was that US exports became less expensive, while the buying power of the wages of those still lucky enough to have jobs dropped dramatically. In effect, FDR had given all still-employed working Americans a pay cut, across the board, in hopes of getting the economy going (even though wages were still nominally the same amount).

      Giving everyone a pay cut, thus boosting profits, enabled credit to flow again to some extent. Amadeo Giannini, helped FDR create an employment stimulus by directing BofA to buy up the entirety of the bond issue needed to fund the bridge.

      As we know, the FDR Keynsian policies weren't quite enough to reverse the stagnation of over-accumulation but they did staunch the decline until World War II came along -- and they did get the bridge built. The bridge was completed in 1937.