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The Great Depression Debate

Bernanke and many other economists believe the Fed’s failure to bail out stricken banks between 1929 and 1932 was one of the main reasons the Depression lasted so long. In 1932, Herbert Hoover established the Reconstruction Finance Corp., which lent to banks, railroads, and other troubled businesses but failed to reverse the string of bank failures. By the start of 1933, when Franklin Delano Roosevelt entered the White House, thousands of banks had gone under and many more were facing potential runs on their deposits. F.D.R. declared a bank holiday. When the banks reopened, the Fed had broader power to bail out those that were struggling.