From the Great Depression to the 'great recession'.

• Author: Cheney, Glenn Alan

IN THE DARKENING DAYS OF LATE 1931 IN a world teetering on the brink of economic collapse, eight corporate controllers met in New York City to light a candle. Banks were closing, businesses foundering, unemployment soaring, the Dow Jones average one-tenth of what it had been--and nary an indicator offering hope.

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The economic breakdown, at its core, had financial causes. Something wasn't working right. How had a decade of peace and prosperity led to this? Why had the nation's best and brightest financial professionals been unable to see it coming? And how were they going to stop it, fix it and prevent it from happening again?

To these controllers--then the senior financial executives in their organizations--the times clarified that the science and profession of finance needed improvement. Finance had not kept up with the modern economy. It needed standards, theories and benchmarks. The profession needed education and ethics. Business needed to recognize the link between economics and profit. The government needed to know how best to nurture a healthy economy.

Thus was born the Controllers Institute of America. Membership expanded quickly and by April 1932, membership reached 100 and doubled by the end of the following year. For the next several years, membership more than doubled each year, even as the number of functioning companies declined and the country experienced economic upheaval.

President Herbert Hoover's attempt to solve the problem by cutting spending failed to produce the confidence he intended. As the 1932 election approached, he resorted to emergency lending to failing banks. To ease unemployment, he funneled some money into public works. But stop-gap measures weren't working.

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In 1933, Hoover handed President Franklin Roosevelt a seemingly intractable problem. Roosevelt came into office with a presumption that the country needed a chief executive with unprecedented emergency power. Congress did not resist as the federal government declared a nationwide bank holiday. Within three days, Congress passed the Emergency Banking Act; within a week, the U.S. Treasury Department was performing triage on banks, allowing some to reopen while shut-ling down others before they failed.

Recognizing the systemic failure of the banking system, Congress passed the Glass-Steagall Banking Act, erecting a financial firewall between commercial and investment banks. Depositors were assured their deposits were safe. Commercial banks were prohibited from investing or underwriting corporate securities. Investment banks couldn't accept deposits.

Far from turning around, the economy was getting bedrock support from the federal government and Roosevelt pushed...