KEYENSIAN PHILOSOPHY

In 1938, The U.S. established the Federal National Mortgage Association, aka
Fannie Mae. Previously, the Veteran’s Administration and the Federal Housing
Administration had guaranteed home mortgages. The concept was that Fannie
Mae would buy those mortgages from the banks, which would free up capital for
banks to make more government insured loans. Local banks now had Federal
money to finance home mortgages. The intention was meant to be noble-- increase
home ownership and the availability of affordable housing. It is also important to
note that Fannie could only buy “conforming loans.” Conforming loans are loans
guaranteed or insured by the government, which were originally extended by banks
subject to strict criteria known as the 4 C’s: Credit, Capability, Collateral and
Character. For instance, if you had late payments on a previous mortgage, you
didn’t get a loan. If the principal, interest, property taxes and insurance exceeded
33% of your monthly income, no loan.
In 1944, at the Bretton Woods Conference in New Hampshire, 44 nations agreed to
a system for regulating international monetary relations, thus the International
Monetary Fund, or IMF was born. Countries currencies were pegged against the
U.S. dollar which could then be converted to Gold at a fixed exchange rate.
The fragile recovery from the Great Depression, then WWII, then post-war
reconstruction forced governments to have a close hand in capitalist economies.
Europe and the U.S. saw tough regulations implemented. For example, to prevent
financial conglomerates from amassing too much power the U.S. Congress, in
1956, extended the Glass-Steagall Acts to prevent bankers from underwriting
insurance policies. However, banks could still sell insurance and insurance
products. Protectionist trade tariffs were also introduced.

The 1950s and 60s ushered in a long economic boom in the U.S. and Europe.
Mass consumer goods markets were developed. Keynesian Economics became a
widely accepted method of government regulation. Keynesian philosophy
basically calls for private enterprise, but with an active government and public
sector role. The belief is that governments should stimulate the economy through
monetary policy such as reductions of interest rates and investments in
infrastructure. Keynesian economics certainly did not reign in 1929-- total U.S.
governmental expenditures (federal, state and local) were less than 10% of Gross
National Product (GNP). By the 1970s, they were 33%. GNP is the market value
of goods and services created by citizens in a year whether produced domestically
or nationally. As opposed to Gross Domestic Product (GDP), which is the market
value of only those goods and services which are produced domestically. The
1950s and 60s was also marked by major social safety nets put into place in most
advanced capitalist economies, such as social security, universal healthcare,
Medicaid, and Medicare. Advertising exploded as a way of promoting mass
consumption.