CS2 - Panic of 1933 and Federal Deposit Insurance Finance, SPSS Essay

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1 What do commercial banks do in the 1920s? Does this mix of activities make sense? Why do panics recur?
Banks played a significant role in the economic boom during the late 1920s. They contributed through various channels such as consumer credit, securities investments, loans on securities, public offerings of securities, and real estate lending. An increase of new financing has resulted from these different channels which intensified the debt burdens of the involved business firms as well as the consumers. This has also motivated both groups for speculative investments. The contribution of commercial banks to the economic boom in the 1920s has resulted in the conditions that were associated with the onset and severity of the Great Depression. One of the conditions involves abundant credit which enabled both the public and private sectors to infer enormous debt burdens which led to the instability of the national economy at the end of the 1920s. The debt of both private and public sectors has reached more than US$200 billion which is owned majority by private firms and individuals, comprising about 80% of the amount by the year 1929. This debt burden is estimated to be greater than doubling the nation’s total annual income of US$87 billion. In the United States, the total debt service in terms of gross domestic product percentage had increased to 9 percent in 1929. Consumers, business firms, and state and local governments we’re exposed to these overwhelming financial shocks that took place during this highly leveraged situation of the Great Depression (White).
When there is a simultaneous failure of multiple banks in a given period, bank panics would occur. People tend to get their money out of the bank with the fear of the safety of their deposits,...