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Begin To Invest Daily – February 14th – Romantic Investors, 1933 Michigan Bank Holiday

Quote of the Day:

Buffett on Romance:

buffett_investor_ro2

This Day in History:

 

Best February 14th in S&P 500 History:
  • Year 2003 – S&P 500 up 17.52 points, or 2.14%
Worst February 14th in S&P 500 History:
  • Year 1980, S&P 500 down 1.45%

 

1933 –
At 1:32 AM on a Tuesday morning, Governor William Comstock of Michigan declares a 8 day banking holiday as Michigan banks struggle to remain open. In the midst of the great depression banks nationwide were stressed, but Michigan was hit particularly hard by the great depression. After failed negotiations with Henry Ford for help, the governor was forced to declare a banking holiday to prevent defaults. However the banks would not open in just 8 days. Banks in many other states were not in any better condition than those in Michigan. By early March, 36 states had banking operations suspended.

Then on March 6th, just 36 hours after being sworn into office, President Roosevelt declared a week long national bank holiday. Over the next week panic would subdue and with the help of legislation from congress, the worst of the bank runs would be over.

 

Image of the Day

 

What is the role of the Federal Reserve system in a financial panic, such as the one on this day in 1933? One is to provide currency (and gold in 1933, as we had a gold based dollar) to the banks. In bank runs, customers withdrawal cash and hoard it outside of the banking system. This is evident in the Federal Reserve Board’s 1933 annual report, which tracked the currency in circulation at the time of the panic:

Fed_Reserve_cash_in_circ_1933_2

 

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