My grandfather Morris Masiroff emigrated from Czarist Russia when he
was a young musician more than 100 years ago. He had been drafted into the
Russian army, and served for a time as the conductor of one of the Czar's
military bands, but after a series of violent pogroms, he, like so many of his
co-religionists, fled Russia and sailed to the United States, settling briefly
in New York City. There, he became a street peddler. My grandmother, who
he had known back in Russia, where she lived in a neighboring village,
emigrated separately with her four sisters to New York a few years before,
and there she was reunited with my grandfather and they married. At some
point, they moved to Erie. PA (for reasons I do not know, or if I once did,
I have forgotten). It was precisely the turn of the century, and my grandfather,
a clarinetist and a composer by profession, opened a small furniture store,
expanded from his selling goods on the street. (This story was repeated, in
assorted forms, in hundreds of cities and towns, and more than many hundred
thousand times over the next few decades.)
For a musical artist, my grandfather (whom I do not remember; I was two when
he died) obviously had some business skills as well in a very volatile and risky
period of American capitalism, and he managed not only to survive, but to grow
his business over the years until it occupied the floors of two five-story buildings
on opposite sides of upper State Street, Erie's main downtown thoroughfare.
He made it through a financial Panic in 1907, a World War from 1917-18
and then the stock market crash in 1929. His business went on, however,
and he put his money in as safe a place as you seemingly could in those days,
The Second National Bank of Erie. By 1933, however, the Depression was
worsening, and many banks were teetering. "Runs" on many banks were common
(where panicky depositors lined up to withdraw their savings). When there was a
run on the Second National Bank, thinking this was America and not Russia, my
grandfather did not get in line to try to withdraw his money. In a short time, the
bank ran out of funds to pay depositors, and it closed its doors forever. All his
money was lost There was no bank insurance and no recourse. Not all the banks
closed, and not all the deposits were lost, but in February and March, 1933, the
nation came close to the collapse of its entire banking system. On March 4, 1933,
a new president of the United States was inaugurated, and one of the first things
he did was close all the banks in America for a few days, "a bank holiday," he
called it, and through his inaugural speech and aggressive action in his first hours
and days in office, restored enough public confidence to re-open the banks
without further panic.
Today, there is in the United States a Federal Deposit Insurance Corporation
(FDIC) that guarantees, as a form of insurance, all deposits under $100,000 in
U.S. banks (this limit has been expanded to $250,000 per account until the end
of 2013). When banks have failed since 1934, no depositors have lost any money
(shareholders in the banks, however, presumably did). Of course, this guarantee
is not quite as absolutely certain as some might think. It assumes that the
guarantor, the U.S. government and treasury have enough money ("full faith and
credit") to back up the losses. The recent bailouts of major U.S. banks, following
the mortgage banking crisis, were not bailouts of depositors in those banks. They
were bailouts of the shareholders and the creditors of those banks.
I have told the story of my grandfather because, with the increasing reports of
panic in Europe, and runs on some of its banks, as the European Union faces a
continuing economic crisis, I think it may be useful to remember a time when, in
the U.S., bank runs and panics were very real and very devastating.
I don't know how he did it, but my grandfather somehow survived the loss of all
his money in the Second National Bank of Erie. I think I remember hearing he
took on a partner in the business who invested some cash. It was a difficult time
to be in the furniture bsinesss, or any retail business, and his furniture business
was not an upscale one. It sold furniture to blue collar and working poor families
in Erie, and often on credit that was not paid for an extended period of time. His
willingness to extend credit beyond normal limits created a very special loyalty
for thousands of his Erie customers, most of whom did ultimately pay their bills
during those difficult Depression days. After it was over, and World War II' was
over, most of them, now earning good money in the post-War period, came back
again and again to buy their furniture. from Masiroff's. When I was a teen-ager
and worked in the family business (first as a janitor, but later as a salesman),
I heard numerous stories from customers who told me how Masiroff's helped
them through bad times, and now they would buy their furniture and appliances
at no other store. Younger customers would tell me time and again how their
parents and grandparents insisted they buy their furniture only at Masiroff's.
(By the 1970's, however, family furniture stores, and many other family businesses,
were replaced by chain stores and discount stores if they did not adapt. My uncle,
my grandfather's only surviving son, managed the store for the family, but he did
not adapt. The business was liquidated at pennies on the dollar.)
In Germany and France today, the governments are in a position to stabilize their
banking systems, even in the present period where most of the nation states of the
European Union have a common currency, the euro. Great Britain, wisely it now
seems, did not accept the euro, even though it joined the EU. Smaller European
nations, however, are in deep trouble. There is now an expectation that Greece
will withdraw from the euro, and reinstate its former currency, the drachma.
Anticipating this, many Greeks are beginning to withdraw their euro deposits from
Greek banks, and depositing them in banks in Germany, Switzerland and France.
They have assumed that, at the moment Greece withdraws from the euro, their
accounts will automatically become drachmas that will quickly lose their value in
relationship to the euro of the rest of Europe. This scenario could then be repeated
in Spain, Italy, Portugal and other smaller EU countires. These countries and their
treasuries might not have the reserves to back up their local banks. Like my
grandfather, the citizens of these countries could be wiped out financially, and this
could lead rather quickly to a virtual collapse of most of the European economy.
This is, of course, the worst case outcome. Europe still has a very large economy,
and Germany, most of Scandinavia, France and Great Britain still have very
significant financial resources. The worldwide Depression of the 1920's and 30"s
was preceded by the collapse of a speculative "bubble," but the true impact of
disaster occurred because of the disappearance of credit in the money supply. In
Europe, especially in Weimar Germany (a brief republic), extraordinary inflation,
accompanied by massive unemployment, wiped out the post-war economies.
In Russia, a decadent absolutist monarchy was also briefly replaced by a liberal
regime, but the Russian economy had, at that time, little heavy industry, few
entrepreneurs, no available capital, much actual starvation, no history of
democracy, and was thus easy prey to an insurgent predatory communist takeover.
2012 is not 1932, but the basic conditions of human life remain unaltered. In a
healthy democratic capitalist society, bad times are transformed into good
times again. A healthy society not only provides for its poorest members, it
provides opportunity for all its members to succeed and thrive. Only a very
few centenarian Americans alive today remember well those scary times in
1931-33 when the U.S. banking system teetered on the edge of collapse, and real
revolution was in the air. What would have happened if Franklin Roosevelt had
not brought calm and then confidence back to the banking and free market
system? The answer is that a political and economic system we now take for
granted might have collapsed into anarchy, and who knows what after that.
The worst case is what did happen in parts of Europe then, and the cost was
hundreds of millions of lives, unspeakable violence and human depravity.
Many more persons now live in Europe, and their standard of living, even in
the poorest of countries, is many levels above the poverty and despair that
existed only 80 years ago. When I read about runs on the banks in Europe,
however, I think about how unsympathetic and impersonal history can be
when political and economic leaders behave badly.
I'm just saying.
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Copyright (c) 2012 by Barry Casselman. All rights reserved.
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