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The similarities between 1929 and 2009 in the United States demand our new president take a more aggressive role in protecting and promoting the well-being of American institutions. These institutions include not only those dealing with finance, industry, education and technology, but also families, local communities, and health and human services. America in the 1920s was a prosperous nation. A housing boom enabled millions of Americans to own their own home. By 1924, about 11 million families were homeowners, out of a population of 114 million people. Automobiles, electricity, radio and mass advertising became increasingly influential in the lives of average Americans. Additionally, corporations increasingly offered workers fringe benefits and stock-sharing opportunities.

However, the overall prosperity of the United States in the 1920s--like now--overshadowed the chronic poverty of certain vulnerable populations. These were the same populations that had always been at risk in American history: children, the elderly, minorities, female-headed families, people with disabilities and workers with unstable or low-paying jobs. If this was the "old poverty," the "new poverty" began with the famous stock market crash of 1929 and the onset of the Great Depression. This is when many middle- and upper-income families first experienced real poverty in America. The sudden and severe downturn of the American economy left many of these people in shock and denial. Between 1929 and 1933, consumer spending declined 18 percent, manufacturing output dropped 54 percent, and construction spending plummeted 78 percent. Eighty percent of production capacity in the automobile industry came to a halt.

Sound familiar? Yes, it does, and because it does, President Obama has both a responsibility and an opportunity, like FDR, to make lasting changes that will position U.S. economic and social institutions for success for the rest of this century.

The modern connotation of the term "bubble" enters the English language in 1720, when the "South Sea Bubble" investment scheme - a project that promised investors extravagant returns from the profits of the slave trade - collapsed. To be "bubbled" was to be deceived into surrendering money, property, or other valued items. Such a usage is first recorded for the year 1668 in Charles Sedley's play The Mulberry-Garden, in which "bubble" served as a noun signifying someone who was a "dupe" ("Are any of these Gentlemen good Bubbles, Mr. Wildish"). In 1675, William Wycherley's comedy The Country Wife shows the word "bubble" used as a verb connoting being tricked into an ill-advised investment ("He is to be bubbled of his mistress as of his money"); and in 1702, Abel Boyer's The English Theophrastus gave a gambling context for the verb, saying, "Men are commonly bubbled when they first enter upon play."

When "bubble" was applied to the South Sea scheme, accordingly, it was not suggesting that investors were passively part of a natural economic cycle, but that they were actively and deliberately being cheated by stockbrokers who regarded the stock market as a casino. Consequently, "bubble" grew to mean financial swindles, lies and their effects upon economic confidence and political opinion, and anything involving paper financial instruments. Later in the century, these meanings began to be visually represented in pictures of "balloons."

The corruption that had formed the South Sea Bubble was miniscule when compared to the corruption of the bailout that followed the Bubble's bursting. The scheme began when the British government, seeking to reduce its long-term national debt, arranged a debt-for-equity swap in which it offered South Sea Company stock in exchange for the bonds and annuities possessed by its creditors. To smooth the controversial passage of the bill legalizing this swap through Parliament, members of Parliament from both parties were bribed with shares in the stock. Members of the Royal Household of King George II were also given shares, and the billed passed, sending the stock soaring for the better part of five months. After the market crashed in September 1720, a bailout was arranged in which stockholders were credited with an above-market price for their shares, which were then converted into stock in the Bank of England and East India Companies. The involvement of the King and his household was kept out of the media, and a few South Sea Company executives were put on trial, serving as scapegoats whose guilt reassured the public that the stock market would function well but for these exceptional people.

Illustration by Ken Orvidas

Suspend disbelief for a moment, and imagine this: You're sitting one seat from the window on a flight from Boston to Denver when the guy next to you flips open his laptop. "Blast," he mutters--there's no place to plug in. Then, aghast, you watch him pull out a small wind turbine, connect it to his laptop, open the window and attach the turbine to the plane's wing. Imagine that instead of a cacophony of protests, others around you say, "Hey, that's a great idea!" and begin powering their hair dryers, space heaters and miniature SETI antennae. Eventually, the drag of the turbines is too much, and the plane is forced to land in a field outside Indianapolis. Everyone gets out scratching their heads, saying, "How did that happen?"

Far-fetched? Well, something similar just happened with our economy. The economy is a vehicle for the creation and exchange of items of value. We all rely on it to operate smoothly without crashing, but we don't really understand how it works. It's a collection of numerous subsystems interacting in complicated ways. Yet we allow just about anyone to come up with new financial instruments and deploy them.

This problem appears in less dramatic fashion in open-source software. With open-source software, anyone can take a complex system that lots of people depend on (say, a spreadsheet) and make any change they like. But that change isn't propagated to everyone's machine instantaneously. The change is submitted to a repository where other people--including responsible experts called maintainers--can review it, push it to its breaking point and test its underlying assumptions. Only when the change has run such a gauntlet is it incorporated into software that is released to the public. This process allows for innovation while maintaining system stability.

The financial sector could take notes from open-source software. First, those with the most knowledge and involvement need to recognize their responsibility as maintainers of a complex system we all use every day. Those who seek to modify the system to their own profit should be viewed as criminals, or at least be professionally sanctioned. Second, financial innovations should be subject to scrutiny and testing in simulations and smaller markets before they are allowed to be replicated in the wider economy. This process would allow for innovation while maintaining some level of system stability.

That financiers and investors are merely thieves and con artists in respectable disguise has for centuries been a theme for playwrights, poets, and novelists. Long before W. H. Auden and Tom Wolfe, the Victorian novelists Charles Dickens and Anthony Trollope conceived monstrously successful financiers who, at last, were exposed as cheats. Dickens' Mr. Merdle and Trollope's Mr. Melmotte anticipate the crimes and disgrace of Bernard Madoff, who might have sprung from their pages.

That our current economic woes may result at least in part from the peculations of super-smart and esteemed swindlers is anticipated by at least three playwrights. Harley Granville-Barker, friend of Shaw and co-founder of London's prestigious Royal Court Theatre, produced in 1905 "The Voysey Inheritance." Three centuries before Voysey, another financier/thief treads the English stage. This is Ben Jonson's Volpone, (1605) a man who only loves his great wealth. In Jonson's acerbic description of investment, Volpone pretends to be dying. Every greedy rich Venetian scurries to give the fraud gifts, hoping that he will be designated Volpone's sole heir. By the play's end, the speculators fall out and bring about financial ruin that falls on all of them.

John Gay in 1728 produced "The Beggar's Opera," the most popular play of its day. Though the play's main plot concerns deception in love, Gay's audience knew that the highway robbers and liars who inhabit the play were satiric portraits of politicians and merchants, and that erotic swindling was a deliberate stand-in for mercantile swindling. "Friendship for Interest is but a Loan, / Which they let out for what they can get."

Macheath's deceived women sing, "I am bubbled. / I'm bubbled./ Bambouzled, and bit!" (A bubble in those days, as in these, was an economic scheme that seemed to bring rapid wealth until it burst to leave the unwary impoverished.) As we contemplate our own hard times, we may have as much to learn from imaginative artists as from purveyors of the dismal science.

There is a lot of talk in the air these days about how the economic crisis we are experiencing affects the lives of people on "Main Street," as opposed to "Wall Street." Interestingly, in all of the reporting of massive bailouts, foreclosed mortgages, and consumer indexes, some of the most important voices aren't being heard.

This opinion is based on some current research we've been undertaking at UNH Cooperative Extension to try to better understand how New Hampshire citizen's work lives and family lives intermesh. Since last fall, we've been out listening to New Hampshire family members and have heard some very real voices of the current crisis.

"I get up in the morning at five a.m. and drive my daughter 32 miles to my mother's house, then drive back 16 miles the other way to take my son to school, then it's another 20 miles to my job," described one young single mother from Portsmouth, "I live in fear that the roads are bad, 'cause my boss doesn't tolerate me being late. If I could, I'd quit, it's not a good situation for any of us," she told us.

One of the less visible, but maybe one of the most devastating effects of the economic downturn is the toll it is taking on families. Repeatedly, at focus groups with parents at family resource centers across the state, we have heard and felt the stress in voices of parents who are deeply worried about their families.

"If it wasn't for my mom, I wouldn't be able to keep my son," said a single dad, "She had to quit her job just to take care of my kid. See, when my employer found out I had custody of my son, he just flat out told me that he didn't want me taking a bunch of time off for kid stuff."

Repeatedly, in our research, we have heard of growing pressure on New Hampshire families caused by the economic downturn's impact on the lack of affordable child care, scarcity of public and affordable housing, mounting health care costs and the pressure of many parents having to commute longer and further to find work. These are just some of the less visible effects of a changing economy.

Bailouts and handouts aimed at bolstering the bottom line may be missing the point. History has given us some profound lessons about what really gets us through hard times. In the end, during every economic downturn we've experienced, especially that of the Great Depression, it has been the resilience, ingenuity and integrity of the American worker who has brought us back to stability and security.

In over 80 interviews we've conducted with parents from Derry to Gorham, Keene to Portsmouth, we have heard increasing evidence that families, especially those families who are already fragile, are being pushed to new levels of stress by the worsening economic climate. They describe working or commuting more hours away from their children or elders who they care for, they are having a harder time finding compassion and understanding from stressed managers when their loved ones are ill, and they are watching New Hampshire's fragile network of child care, family support, and social service agencies become over burdened.

One thing that prior research on work and family balance issues is clear about is that when employees are feeling worried or stressed about family issues, their productivity decreases. Unfortunately, so does their resilience, company loyalty, and ingenuity. So, what's an employer, facing falling profits and limited resources to do?

Based on the research, it is pretty clear that one of the keys to survival will be the ability of New Hampshire employers to become more flexible where the lives of their most important assets- their workers - are concerned. If we cannot support New Hampshire families, if we can't work together to reduce familial stress during this downturn, we won't be able to support New Hampshire business.

Flexibility isn't a "perk" and it doesn't have to be costly. It means that this is the time to really listen to our workforce and to help them ease the stress in their family lives so that they can get about the business of relieving our economic stress. So, a more flexible schedule for the mom from Portsmouth, or maybe even a company sponsored child care program closer to home and work For the dad in Rochester, a new company policy that allows for more flexible hours or shift trading. Crisis requires creativity.

As the crisis grows, look to the strength of our greatest resource, our New Hampshire families. If they are doing better, we will all pull out of this period. If their fate worsens, so will our economy. It will be up to all of us to help support them.

Undisciplined American lending practices at the center of the recent economic downturn remind me of two credit crises in ancient Rome. The Romans looked down on the practice of charging interest when lending money. Cato the Elder argued that usury was equivalent to murder; Cicero, Seneca the Younger, and Plutarch all condemned it. Roman law followed suit. The earliest written legal code, the Twelve Tables (451-450 B.C.), limited interest rates to 10 percent, to prevent predatory lending. An edict in 342 B.C. reduced this rate to 5 percent; a later one abolished interest completely, though this provision did not last for long, since we know that Julius Caesar enacted a law limiting interest rates.

This perspective was a manifestation of the Roman notion that productive agriculture, and to a lesser extent commerce, were the honorable ways to increase one's estate. Still, the Roman economy relied on usury nearly as much as ours does--and it cost them no less. Last November, Oxford researcher Philip Kay caused a stir with his claims to have discovered the first "global" credit crunch in 88 B.C., when one of the most persistent enemies of Rome, Mithridates VI, invaded Asia Minor (modern Turkey) and interrupted repayment on loans from Rome. According to Kay, the ripple effect was nearly disastrous in the capital. But an even more serious credit crisis occurred in 33 A.D. under the emperor Tiberius. Illegal loans at high interest--a breach of Caesar's law--caused chaos when many debtors brought suits against their creditors. The Senate, many members of which were guilty of making these loans, gave creditors time to put their accounts in order, but the subsequent calling in of all debts led to a shortage of capital, lower land values (debtors had to sell land to pay off their creditors) and numerous foreclosures, ruining many. It was only when Tiberius himself released 1,000,000 sesterces (perhaps $1 billion today) from the imperial treasury for interest-free loans that economic stability was eventually restored. Interest rate cuts and bailout, anyone?

A rising chorus of commentators is blaming the current financial crisis on, of all things, poor people. Over the last several months, certain members of Congress, political pundits and journalists have blamed the 1977 Community Reinvestment Act (CRA), for bringing down Wall Street by forcing banks to make high-risk loans. Never mind the byzantine financial engineering, greed, and lack of regulation. Poor people and "big government" did it.

The CRA legislation directs banks to identify the credit needs of the communities they serve and to affirmatively meet those needs, consistent with safe and sound banking practices. Data collection related to CRA helps monitor the level of lending, investments, and services in low- and moderate-income neighborhoods traditionally underserved by lending institutions. So let's look at the facts.

1. Only about 25 percent of subprime loans were made by CRA-covered institutions. Most of the losses start with lenders not covered by CRA.

2. Federal regulators have always stressed that no bank should ever make an unsound or below-market loan.

3. The "Ownership Society" promoted by President Bush stressed home ownership. Neither Bush nor the majority of the Republicans ever were advocates for CRA.

4. Fannie Mae was never covered by CRA.

5. Aggressive marketing by banks of option-pay, interest-only and other exotic mortgages had nothing to do with any CRA mandate.

In the midst of the current economic crisis, the words penned by New Hampshire poet Robert Frost in 1920 seem particularly apropos: "Two roads diverged in a wood, and I-- / I took the one less traveled by, / And that has made all the difference."

Do we pursue Einstein's definition of insanity by investing the financial stimulus package in the same old things--roads, bridges, bombs, Hummers, fossil fuel, 20th-century jobs--expecting a different outcome? Or do we now take a road not previously taken?

In my lifetime, we have witnessed the crescendo of five centuries of unsustainable development that has brought better health and education to some, and staggering monetary wealth to a select few, but has also lead to the current crises of global climate disruption, the Earth's sixth mass extinction, the obesity pandemic, and rampant consumerism.

Every crisis, however, also carries with it opportunity. As we pause to consider the way forward, let us take this unique opportunity to choose the path that leads to a sustainable future. This means not only investing in green jobs, but investing in transformational change so that we stabilize our climate, preserve our existing ecosystem, cherish the food that we grow and eat, and become global citizens.

The choice is ours and will certainly determine the world future generations inherit. If this country leads, the world will follow. Sustainable communities are within reach if we choose to pursue them.

As the holidays are just about upon us, the state of the nation appears to be in crisis. The American economy is facing one of its worst recessionary episodes since the Great Depression. Just a few days ago, the on-going recession was declared to be 12 months old.¹ On the first Friday in December, government figures showed that 533,000 jobs were lost in November -- the most in more than 30 years. America's big three auto makers have just been before Congress seeking loans. General Motors tells us it will not survive for more than a few weeks if it does not receive help from the government. So how did all of this happen?

While the economy is complex and chronic problems may for considerable periods, recessions on occasion have a clearly identifiable cause. Apparently, the present crisis began with falling housing prices. Some prior events set the stage. In the late 1990s, Congress wanted to make it easier for lower income households to buy their own homes. By itself, this is a worthy social goal. A new category of housing loans known as "sub-prime" mortgages was created. A few years after their creation, falling housing prices accompanied by rising interest rates and adjustable rate mortgages eventually led to a high failure rate for sub-prime mortgages. Long before that, with financial deregulation in the 1980s, government sponsored agencies such as Fannie Mae and Freddie Mac began to buy mortgages from the lenders like banks and savings and loans who originally made the mortgages. Fannie and Freddie issued 'mortgage-backed" bonds with the implicit financial warranty of the federal government. Buyers thought that Fannie and Freddie bonds were as safe as U.S. Treasury bonds. The activities of Fannie and Freddie allowed banks and S&Ls to replenish funds available for mortgages much more quickly. In the late 1990s, Wall Street investment banks got into the act. They also began to buy and repackage the bonds originally used to expand the financing of mortgages.² Financial instruments such as mortgages or mortgage-related bonds were often repackaged into other instruments called derivatives.³ The scale of these transactions typically exceeded a billion dollars or so at a time. As housing prices came down, sub-prime low income borrowers began to default on their monthly payments, mortgage backed bonds began to lose their value, and mortgage-related derivatives became nearly worthless on a grand scale.

As asset values declined, banking and accounting regulations typically require firms to restate their assets. As mortgages lost their value, banks and S&Ls wrote down the value of their businesses. Then, as mortgaged backed bonds and derivatives also lost their value, this process was repeated many times over for Wall Street firms. What happened was a general decline of asset values in trillions of dollars of mortgage-related financial instruments held throughout North America and Europe. In September, commercial banks and investment banks began to fail. Then the stock market began a steep decline. Mirroring the fall in value of mortgage related financing instruments, the stocks of commercial banks and Wall Street firms also plunged. Next, borrowing and lending came to a stand still, a credit crunch began. The interconnected chains of borrowing and lending among financial institutions that made the economy so strong for so many years basically ground to a halt. It was just a matter of time until the decline in borrowing and lending affected the rest of the economy. At the end of the day, funding essential for the manufacturing, retail, and construction sectors and for consumer credit also fell dramatically. The financial problems of the financial sector quickly became the financial problems of the economy at large.

In September and October, facing a banking panic, a credit crunch, and the decline of the stock market, the Federal Reserve began emergency operations. The Treasury also participated in these actions because financial deregulation since the 1980s had blurred the lines between commercial banking and Wall Street.⁴ According to the research of the noted, late economist Milton Friedman, the Fed failed to perform its emergency or lender of last resort function during the Great Depression. More than 9000 banks failed between 1929 and 1933 and the basic money supply fell by nearly a third. Most economists of all political persuasions now believe that it was the failure of the Fed that was the cause of the severity of the Great Depression.⁵ There is near universal agreement among economists, that another great depression is unlikely to happen as long as the banking and financial system is kept in tact.

More recently attention has turned to the rest of the economy. Retailers are suffering and American automakers appear to be on the verge of collapse. Besides mortgage delinquencies, over the last two years oil and gasoline prices have been high and volatile. This has lasted long enough for households and business to believe they need vehicles that are much more fuel efficient. Minivans, SUVs, and pick-up trucks that cost $100 per fill up have been an enormous shock to all of us. Consequently, consumers have begun to decrease dramatically their purchases of the most profitable vehicles for the Big Three auto makers. When the housing and sub-prime mortgage crisis hit in August, when financial institutions began to fail in September, and when stocks began a steep decline in early October, these events contributed to the further decline in domestic auto sales. American auto manufacturers are now before Congress asking for loans to prevent their failure over the next few months.⁶

Is it the role of government to save the American auto industry? Some believe that the actions to save banks and Wall Street should similarly be replicated for domestic car producers thus saving the jobs of some of our most skilled workers. There is no doubt that the collapse of GM or Chrysler would further deepen the recession. But there are reservations about government becoming so deeply involved in manufacturing. There is a long tradition of government intervention in banking and finance in order to maintain the payments system of the nation. The Fed has experience in liquidating banks in a way to minimize damage to the rest of the economy. Financial pathways are preserved even as banks are closed and merged with other banks. The Fed and Treasury have only infrequently dealt with firms outside of the financial sector. While we know we will need financial institutions one way or another, we do not know what types of cars the American public wants to buy and from which company they will purchase them. This makes bail-outs to the auto makers much riskier and categorically different than actions taken to support the financial system.⁷ In the long run, government should sell any ownership stake and get out of the business sector. In normal times, the private sector is a superior allocator of capital and economic growth. But these are not normal times. Wherever possible, as private individuals, we should be sensitive enough to help those who suffer the most from this recession and especially college students. While recessions are painful, they do have some benefits. Excesses and weaknesses in past business and economic practices are often corrected. In this way recessions help to lay the foundation for a return to prosperity, a prosperity that will likely come sometime in 2010.

¹ At the beginning of December, a private research group, the National Bureau of Economic Research, declared that the recession began in December of 2007. The NBER began dating business cycles nearly a hundred years ago before the federal government began to collect economic data systematically in the 1940s.

² This repackaging was often done through three layers. Bonds were issued on top of bonds and then again on top of other bonds. Mortgage related financial derivatives amounting to trillions of dollars and were sold to financial institutions and investors around the world. These repackaged entities are known technically as collateralized mortgage obligations or CMOs. To facilitate such offerings, Wall Street firms usually created off-balance sheet shell companies as separate legal entities.

³ Just a few years ago the ratings agencies like Moody's were making a very high percentage of their income from rating these large issues of CMOs.

⁴ The Federal Reserve was created in 1914 to be a lender of last resort when a banking and financial panic previously had caused a sharp but relatively brief recession. The banking panic of 1907 led to the recession of 1907-08. Everyone thought this recession could have been averted. Thus the Fed was created to buy the loans of commercial banks in a time of crisis. The aim was for the Fed to be a source of liquidity so that banks would have the cash to stop a run on deposits from their customers.

⁵ Current Fed Chairman, Ben Bernanke, is a noted scholar of the Great Depression. His aim is to keep the banking and financial system in tact until this crisis phase is over.

⁶ With the accelerating recession and the housing crisis, gasoline prices have fallen dramatically, but not enough for car sales to increase. People seem convinced that technologically innovative vehicles are essential for the future. At this point, consumers appear to be in a waiting game delaying new car purchases, a delay which could lead to the demise of the Detroit-based car makers.

⁷ Here the government needs to emulate strategies that would be pursued in a bankruptcy reorganization. The automakers believe that people will stop buying their cars if they go through formal bankruptcy. If that is the case, then we will need to circumvent the formalities of bankruptcy. A bankruptcy proceeding typically preserves the productive capabilities of the physical assets and lowers costs. Congress needs to model its interventions along the lines of a bankruptcy proceeding to whatever extent is possible. If loans are given, then it would seem reasonable to demand a temporary equity position so that the taxpayers can be rewarded for the risks they are taking in getting the automakers through this crisis.