I just recently started reading The Snowball a Warren Buffet biography by Alice Schroeder, and being that the oracle of Omaha was born around the era of the Great Depression it invariably comes up as a topic.   I am not that deep into the book but interestingly enough Warren’s parents actually seemed to have continue to prosper during that tough time for America.  It is that fact that made me think about what the equivalent of the great depression would be today?

A Market Crash Like No Other

According to the Wikipedia entry for Wall Street Crash of 1929,

The market had been on a nine-year run that saw the Dow Jones Industrial Average increase in value tenfold, peaking at 381.17 on September 3, 1929

On October 24 (“Black Thursday”), the market lost 11% of its value at the opening bell on very heavy trading

On October 28, “Black Monday”, more investors decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 13%.

The next day, “Black Tuesday”, October 29, 1929, about sixteen million shares were traded, and the Dow lost an additional 30 points, or 12%

The market had lost over $30 billion in the space of two days which included $14 billion on October 29 alone

After a one-day recovery on October 30, where the Dow regained an additional 28.40 points, or 12%, to close at 258.47, the market continued to fall, arriving at an interim bottom on November 13, 1929, with the Dow closing at 198.60.

After the Smoot–Hawley Tariff Act was enacted in mid-June, the Dow dropped again, stabilizing above 200. The following year, the Dow embarked on another, much longer, steady slide from April 1931 to July 8, 1932 when it closed at 41.22—its lowest level of the 20th century, concluding an 89% loss rate for all of the market’s stocks.

The emphasis is mine.  Could you imagine if the Dow which is at about 15,750 as of the writing of this post was suddenly 140.175? Your 401(k), IRA, basically not nailed down, in cash or in gold would be desimiated that would take a decades to get back.  The Dow didn’t hit the record high again until November 23, 1954 – 25 years later.

Wow.  But worse.

Bank Failures with No Federal Insurance?

It wasn’t cited but according to Great Depression Causes,

An estimated 9,000 banks failed during the 1930s and the Great Depression.

In 1933 alone, people who had money deposited in banks lost approximately $140 billion.

There has been less than 500 banks which went under since 2008, although I don’t think that is exactly a fair comparison.  I would assume that banks today are much more concentrated.  If I had to guess there isn’t even 9,000 banks across America anymore.  Why would there be? Not everyone needs a local bank with the invention of ATMs and a little thing called the internet.  A much more important number…$140,000,000,000 lost.

However the FDIC was created in 1934 and (sort of) stymied any chance of those kinds of numbers ever again,

The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.

The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures approximately $9 trillion of deposits in U.S. banks and thrifts – deposits in virtually every bank and thrift in the country.

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

So while we had bigger losses they were covered through FDIC insurance.

What Would Happen in America if there was a Great Depression Like Problem?

I was on Long Island when gas lines started to build because of Hurricane Sandy.  The horror stories may have just been that, stories, however just a “simple” gas shortage seemed to get people in a panic.  I am not exactly sure what would occur should people’s savings started to disappear from our banks and if their investments were a tenth of what they were a year ago.

I don’t think our Country as it is today would survive another great depression.