If one wants to understand why Congress and the White House wish to sneak in “corporate” socialism in the guise of a “bailout” of Wall Street and the American economy, the following ought to serve as a good starting point, and provide some context of why the government thinks it ought to take action:
“The accounts of the receipts and expenditures during the year ending on the 30th day of September last, being not yet made up, a correct statement will hereafter be transmitted from the Treasury. In the meantime, it is ascertained that the receipts have amounted to near eighteen millions of dollars, which, with the eight millions and a half in the treasury at the beginning of the year, have enabled us, after meeting the current demands and interest incurred, to pay two millions three hundred thousand dollars of the principal of our funded debt, and left us in the treasury, on that day, near fourteen millions of dollars….The probable accumulation of the surpluses of revenue beyond what can be applied to the payment of the public debt, whenever the safety and freedom of our commerce shall be restored, merits the consideration of Congress. Shall it lie unproductive in the public vaults? Shall the revenue be reduced? Or shall it rather be appropriated to the improvements of roads, canals, rivers, education, and other great foundations of prosperity and union, under the powers which Congress may already possess, or such amendment of the constitution as may be approved of by the States? While uncertain of the course of things, the time may be advantageously employed in obtaining the powers necessary for a system of improvement, should that be thought best.”* (Italics mine)
So wrote President Thomas Jefferson in his last message to Congress in November, 1808. In past addresses and messages to Congress he reported revenue surpluses, and often recommended the reduction or abolition of taxes. The last time the federal government reported an actual surplus that did not reflect bookkeeping legerdemain and an appropriations shell game was during Calvin Coolidge’s administration. In Jefferson’s and Coolidge’s instances the surpluses were in gold and silver currency and metal-based promissory notes, not in the baseless fiat paper and clad-zinc coinage of today. Gold and silver cannot be created by the snap of one’s fingers or by an order from the Federal Reserve to cover deficits and debts, as fiat money is now. Gold and silver served as restraints on government spending and intervention, which is why FDR took the U.S. off the gold standard, and why silver coinage vanished by government order after 1965.
Without going into detail about past, pre-Federal Reserve Bank episodes of financial panics – such as the one Alexander Hamilton managed in 1792, the two Bank of the United States experiments, and the Panic of 1907 – it should be stressed that neither the participants nor the institutions involved sought to take over the entire American economy – that is, attempt to “socialize” or “nationalize” it – as the White House, Congress, the Federal Reserve Bank, and the U.S. Treasury are proposing to do now. It should also be pointed out that in none of those instances was the U.S. government the chief instigator or culprit, as it is today.
Another interesting facet of the government-made financial crisis is that two of the entities that needed to be “rescued” by the government, Fannie Mae and Freddie Mac, are government-founded mortgage companies created to sell and invest in cheap credit and cheap mortgages. There was no other purpose to their existence. They were created to “serve the public.” Treasury chief Henry Paulson and Federal Reserve chief Bernard Bernanke have nothing over Scottish banker John Law, author of the Mississippi Bubble in early 18th century France. Their fiscal policies and economic philosophy are so similar to Law’s that one would think Law was their mentor, but they have blanked out the ruinous consequences of the same schemes.
Nevertheless, Fannie Mae and Freddie Mac have been portrayed by Congress and the news media as independent of the government, when in fact they are taxpayer-subsidized. In a genuinely free market, an organization that behaved as recklessly as they did would have gone bankrupt and vanished from the scene. But because they were tax-subsidized, risk was no object, American taxpayers being seen by them and Congress as an inexhaustible cash cow. This was also the operating philosophy of Bear Stearns, Lehman Brothers, Merrill Lynch, and AIG, four of their biggest “customers.” They are government entities that hire their own lobbyists to shill for special favors and treatment from – the government.
Financial skullduggery is not the only offense that Fannie Mae and Freddie Mac have committed. Their employees, whose salaries are paid by taxpayers, have also “invested” in the perpetuation of their jobs by sending money to the campaigns and pet pork barrels of Senators Barack Obama, Hillary and Bill Clinton, Christopher Dodd, chairman of the Senate Banking Committee, and many other politicians.
But both political parties, the Democrats and the Republicans, must share responsibility for the debacle. To wit:
“In 1971, Richard Nixon rescued Lockheed by providing $250 million in loan guarantees. When the Penn Central Railroad failed in 1971, Nixon created Amtrak. Jimmy Carter gave $1.5 billion loan guarantees to Chrysler in 1979. Under Ronald Reagan, the FDIC in 1984 spent $4.5 billion to rescue Continental Illinois, which still holds the record as the largest U.S. bank failure. Then, during the S&L crisis of the 1980’s, George H.W. Bush approved the bailout of 747 savings and loans at a cost to taxpayers of $124.6 billion. In 1998, under Bill Clinton, the Federal Reserve Bank of New York bailed out Long Term Capital Management at a cost of $3.6 billion. During the Mexican Peso Crisis, Clinton arranged for loans and guarantees to Mexico totaling almost $50 billion. Then, following the September 11, 2001, terrorist attacks, George W. Bush approved $15 billion in subsidies and loan guarantees to aid the faltering airline industry. This year, the Federal Reserve approved a $30 billion credit line to help JP Morgan Chase acquire Bear Stearns, and engineered takeovers of Freddie Mac, Fannie Mae and AIG.”
Topping all that is the $1.8 trillion the federal government will have shelled out to “save” the economy if Congress approves the proposed “bailout.” All “guaranteed” by the American taxpayer. Only one senator has been reported as calling the Paulson/Bernanke/Bush/Pelosi/Frank plan “socialism,” Jim Bunning of Kentucky. That was accidentally, and it is likely the news media will not let that kind of remark slip through the cracks again.
But, to return to the subject at hand, and to the italicized portion of Jefferson’s message to Congress in 1808, the Founders could not imagine that “improvements of roads, canals, rivers, education, and other great foundations” could be financed by other than government intervention and government money. One may forgive Jefferson and his contemporaries for not being politically omniscient or infallible. Capitalism was in its infancy and the Industrial Revolution lay a generation ahead beyond his last administration. Not even the worst of his contemporaries could imagine that the premise of government responsibility for infrastructure and education could lead to anything but to the “prosperity and happiness” of the nation. There was nothing in the original Constitution that gave the government the power to “improve” the economy, either, except, implicitly, to let it alone.
Instead, that premise has repeatedly led to scandal, corruption, the destruction of wealth, and the looting of the productive sector – with the private, productive sector blamed and punished. It is time to begin challenging that premise, and get the government out of the economy, and especially out of education. Jefferson’s benevolent but erroneous support of public education has ultimately, by necessity, over the course of generations, created a dumbed-down, docile public, one that expects the government to take care of it and solve all problems, real or imagined.
In my original commentary on this subject, I wrote that Congress, the White House, and the other “rescuers” were acting to stave off the pressure-cooked justice of the wrongdoing and fallacious policies of decades. Perhaps the only thing that will educate the American public now is the failure of the system which they were told, and which they believed, was justice-proof.
Then Americans may rise up, as the polls seem to show them doing now in demonstrations and calls to their Congressmen, to proclaim, “Account overdrawn!”
*Thomas Jefferson: Writings, Library of America, 1984, pp. 548-549.