Romer says 2007 resembled 1929

CHICAGO, Sept. 25 (UPI) -- Christina Romer, chair of the White House Council of Economic Advisers, said in Chicago the Great Recession had all the early signs of the Great Depression.

Both financial skids, 1929 and 2007, began with "gentle declines," Romer said in a speech at the Federal Reserve Bank in Chicago Friday. Both episodes were also marked with strong declines in household wealth and both were hit with bank runs, Romer said.

In the Great Depression, the bank runs began in 1930. At that point, the Federal Reserve, after an initial response the previous year, became passive, she said.

In 2008, when Lehman Brothers collapsed, a sustained run on banks was cut off by "bold and effective," interventions, Romer said.

In 1931, the Federal Reserve raised the discount lending rate. In 1932, the federal government raised taxes.

By comparison, the government responses to the current downturn included tax cuts, a $787 billion stimulus package, a $700 billion bailout of financial firms and the takeover of banks, insurers and automobile companies.

"Now is not the time for a victory lap," Romer said. "We have to use (the pain of the recession) to spur fundamental improvements in our regulatory structure," she said.