A reflection on the 2008 financial industry bailout.
By Tim Connor (September 28, 2008)
The person I most wanted to hear from this morning was my father’s father.
I woke up today, as did nearly all you I expect, to the news that a “marathon” session on Capitol Hill ended very early this morning with what the Washington Post is describing as “a tentative agreement on a proposal to give [the Treasury Secretary] broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.”
There’s a pretty big “so what” to this news and it is not in the watered down prose the Post is using. “One of the biggest government interventions?”
Huh? As though we do this with regularity?
As a serious student of history, I think Charlie would say that this rightly brings an end to the era in our national discourse in which the accepted wisdom is that the role of government is to de-regulate business practices and cut taxes on those who profit most from the deregulation. Suffice to say, this ideology is bankrupt when the benefactors turn to the government, the taxpayers, to save them (and us) from themselves.
I don’t want to put too fine a point on this because it is not necessary. Atop a total national debt of $9.5 trillion and annual federal budget deficits of $400 billion, we’re now committing up to $700 billion to bail out private companies in order to stabilize the U.S. economy. There are only 306 million of us to bear this load, and that includes our children. Just by itself, the $700 billion adjusts to nearly $2,300 from each of us.
As the bipartisan Concord Coalition has been warning us for years, we didn’t get to these dire straits of debt on auto-pilot. We made choices to get here, and the sum of most of those choices was that personally and governmentally, borrowing huge sums of money to live well above our means became as American as apple pie. As regards the government, we get what we vote for and we Americans have been trained to think that politicians who would raise taxes and impose regulations on business are the moral equivalent of registered sex offenders.
So we’ve been cutting taxes, especially for the wealthy. You may have your own memorable defining moments of the Bush years, but near the top of my list is the one where we cut taxes on the wealthiest Americans just when we’re digging deeper into debt to finance the Iraq war. John McCain was dead on when he chose to speak out against this. But then he decided to run for President, and you can’t win a Republican primary if you’re for undoing tax cuts of any sort.
The Bush tax cuts struck me as venal. This bail out plan strikes me as the economic equivalent of the Berlin Wall coming down. Whatever else it accomplishes, it clearly demolishes of one of the most intellectually bankrupt and socially unjust myths that we’ve lived with in recent memory. Let me explain.
I’ve been asking myself for the past week, what would Charlie think?
Charlie is Charles J. Connor, my father’s father who was all but broken by the Great Depression. He was a New Yorker then, with two young sons, and with far less than a high school education. The Connors lost their home when Charlie lost his job and couldn’t find new work. He was a construction worker by trade, and he specialized in blasting, as in blowing things up.
He left the country. He found jobs on Lake Maracaibo in Venezuela and with the Panama Canal Company. He eventually did very well with the company. He was based out of Gamboa in the middle of the isthmus, where the Chagres river empties out of the rain-forested mountains into the canal.
If I could take you directly to Gamboa, I could explain his job better. The Panama Canal is a remarkable engineering accomplishment on several levels. But one of the fundamentals of the place is that the geology is highly unstable and, just to remind us that the earth is still in charge, it constantly wants to fill in the canal with mud and boulders. My grandfather’s job for the company was to command a drill boat between Gatun Lake and Gaillard Cut, to help stop the earth from closing the Panama Canal.
He was damn good at it too and to walk the Dredging Division docks with him at Gamboa was kind of like walking into the Yankee clubhouse with Yogi Berra. He had a gregarious laugh and a bark that could be heard for a quarter mile. He took his work very, very seriously because you know, if earth wins at Panama (as it does once every decade or so) the Associated Press sends out a photograph of cargo ships lined up all the way to the horizon beyond the Colon breakwater. And he wasn’t alone. Whatever else could be said about the Panama Canal Company, the company worked. It was known, internationally, for the quality of its trade workers and managers because they knew how to get tough work done, on time.
But here’s the shocker. The Panama Canal Zone, where I grew up, was a grand experiment in American socialism. Free enterprise didn’t exist. We had commissaries and even company-owned drive-ins. If you wanted to get Kentucky Fried chicken, for example, you’d have to drive into Panama City to get it.
It wasn’t until I moved to the states at the start of the Reagan years that I heard my first derisive joke about how government can be counted on to screw things up. I didn’t quite get it. Where I came from, government workers like my grandfather were the ones you wanted to fix the tough problems. They were the state of the art.
Things have changed in the last thirty years. We’ve gone from just joking about how inept government can be to embellishing the myth that government is always the problem, and that de-regulation and getting government out of the way is always the solution. It’s Milton Friedman’s “Freedom to Choose” essays woven into an American bible.
Charlie wasn’t a socialist, or a communist (although he did tell me one day how close he came to becoming a communist during The Depression). He was a big-hearted pragmatist. He retired with a good pension to Florida, and with all his restless energy, immediately got a job at a gas station. He was a shrewd investor who, thank you, played the market pretty well. He loved big books and he loved civil war history, and he lived very comfortably until he passed away a few years back. But the Great Depression haunted him. He was always looking behind him for the shadow of that desperate experience. He wanted no part of it, and he wanted no part of such misery for his children or grandchildren.
I remember exactly where I was when I told him I wanted to be a writer. It was at the foot of the stairs to the weight room at Balboa High School in the Canal Zone where I did weight training for football. He just scowled and spent the next 15 minutes trying to persuade me to be a lawyer, because he didn’t think I would make enough money as a writer.
I’ll be honest with you. I’ve been to the docks at Gamboa and I’m not Charlie’s equal. Being a successful Panama Canal Company drill boat captain was a Shakespearean role in the American Century, and I have never had those kinds of responsibilities thrust upon my shoulders. So, if he were here this morning, I’d be listening, not writing.
But here’s what I think he’d be telling me: there is a social compact between the Golden Gods of American Capitalism and we, the people, the public, the taxpayers. It isn’t right to privatize profits, and then socialize the losses. That’s not right. All that does is enable and encourage people to act recklessly and without integrity.
As a serious student of history, I think Charlie would also say that this rightly brings an end to the era in our national discourse in which the accepted wisdom is that the role of government is to de-regulate business practices and cut taxes on those who profit most from the deregulation. Suffice to say, this ideology is bankrupt when the benefactors turn to the government, the taxpayers, to save them (and us) from themselves.
I’m not smart enough to even try to predict how this morning’s news will affect my children, and their children, if they have children. For those of us who pray, we should all pray that our economy doesn’t descend into a deep recession or depression that crushes people here and beyond. At a minimum, though, it wouldn’t surprise me to learn that the Wall Street flame out will either delay by a decade, or take off the table entirely, the hope many of us have had to make affordable health care available to every American. For that reason alone, it galls me that the bail-out will shield those responsible for these irresponsibly bad wagers and debt schemes not just from going broke, but even from the routine middle-class anxiety that they, or one of their children, won’t get health care if they need it.
I’m sure of is this, however. I don’t want to hear any more from those folks who honestly believe, and preach this as gospel, that being able to harvest the great fruits of American capitalism is God’s way of rewarding them and their class for their virtuous lives. The subtext of this has been that the rest of us poor sots who have to work for a living, and pay our taxes without loopholes, are mainly being held back by our vices and sloth, or by related failures of inspiration, imagination, and persistence.
One thing I’m pretty sure Charlie and I would agree on this morning is that these tiresome zealots should, well, put a sock in it.
Postscript–(July 2014) My grandfather, who built and carefully managed a family trust, would have been furious with the lack of regulation that led to the 2008 financial crisis, and even angrier about the lack of prosecution. In an extensive radio interview last spring, muckraking journalist Matt Taibbi talked not just about the lack of prosecution of bankers involved in the mortgage-backed securities frauds, but offered what I think is an irrefutable moral indictment of how poor people go to jail, and the white collar criminals in much more devastating wrong-doing go largely unpunished, and almost never to prison.