The Spread of Financial Panic


Note how the collapse of financial institutions and governments spread in two directions at once. While the Great Depression was generated by decisions and actions of economic and political actors in the developed industrial and financial world, its effects were most devastating in nations on the periphery that were nevertheless dependent on the health of these industrialized nations.

Beginning in May 1931, panic swept from Austria through Poland, Hungary, Czechoslovakia, and Romania and eventually to Germany, then to Switzerland, France, the United Kingdom, Turkey, and Egypt, Mexico, and the United States.

And matters today may be far worse, not because of the greater depth of the economic crisis, but because of the responsiveness and interconnectedness of world markets. Greece, Turkey, Spain, Ireland . . .

Note also however that with the reversal of the Glass-Steagle Act of 1932, Congress in effect recreated the very conditions that hastened the spread of the financial crisis.

“Where banks were tied to industry, as in much of central Europe, financial distress was quickly transmitted to the rest of the economy.”