Home Article The Ghosts of Bankers Past
The Ghosts of Bankers Past
John McCain invoked his maverick magic to address the economic crisis, while Bush tried to explain it without blaming Wall Street. The financial titans of the past would be pleased.
by Harold Meyerson
McCain Channels Morgan
Let's consider where John McCain was when he and his staff concocted their scheme to call off Friday's debate, fly down to Washington, and resolve the nation's economic crisis through sheer force of McCain's character.
They were in the Morgan Library, on East 36th Street in Midtown Manhattan, prepping for the debate.
It was there, 101 years ago, that J.P. Morgan -- in part through the sheer force of his own character, not to mention his intellect and his economic clout -- summoned New York's other major bankers, locked the doors, and did not let them go until they sifted through the balance sheets of failing banks, decided which to bail out and which to let die, and put up the money to make it all happen. (It was 4:45 a.m. on the night in question when his fellow bankers succumbed to his pressure and Morgan finally unlocked the doors.) Thus was the Panic of 1907 abated.
For a brief time thereafter, Morgan, generally excoriated in Progressive-era America for wielding more economic power than any one man should possess, was uncharacteristically celebrated. He was the man who'd saved the economy from a depression (and having spent most of the 1890s in a depression, America did not want to go there again). But soon thereafter, the idea that one man controlled the credit flows by which the nation's economy lived or died struck Americans with renewed force, and a campaign began to establish a national central bank, under at least some governmental control, to supplant private citizen Morgan. In 1913, Morgan died, and a few months thereafter, Congress established the Federal Reserve.
Fast-forward 101 years. McCain's advisers have long argued that this election was about character, not great issues of state. It was about McCain demonstrating he was decisive and could deal across partisan divides. When the public turned its attention to the economy over the past 10 days, however, McCain began to tank in the polls. What better way to return America's wandering focus to his own leadership qualities than to become a latter-day Morgan? So he summoned the nation's political leaders to a meeting, from which they doubtless would not emerge unless they embraced the McCain Plan, whatever that might be. And woe betide Barack Obama if he declined to sign on.
McCain, it's become clear over the course of the campaign, personalizes everything. Who needs Congress, or a central bank, or a debate between the presidential candidates, when by his swooping decisiveness, his steely nerve, John McCain can ride to the economy's rescue? The only thing more Napoleonic than John McCain is John McCain imbued with the spirit of J.P. Morgan. Win or lose, he should never be allowed inside the Morgan Library again.
Bush Doesn't Channel FDR
But it was George W. Bush who would have gladdened Morgan's heart yesterday. Not, to be sure, by acceding to the demands to limit the pay of bank executives who dump their bad loans on the Treasury. But Bush spent a good chunk of his speech last night telling the nation his version of how the nation got into this mess, and his account was conspicuous for omitting any reference to Wall Street's causal role in its downfall.
As Bush told the tale, "Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on."
"In today's mortgage industry," the president continued, "home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.
"Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac" -- which provided investors with the illusion of security, Bush said.
And that's it. Borrowers and lenders and investors and Fannie and Freddie are to blame. In Bush's version of Hamlet, the prince's father probably died because he forgot to clean his ears.
But who cooked up the idea for the securitization of mortgages and reselling them half-a-dozen times in ever-more complicated securities the value of which were essentially indeterminable, but which enriched brokers every time they changed hands? Who came up with credit-default swaps, an utterly unregulated $62 trillion market insuring these bad deals, but with nowhere near the amount of capital needed in case the deals actually went sour? Who created all these new instruments of credit and debt to keep Americans consuming even as their incomes stagnated? Who created a world economy in which Asia produces (Wall Street liked that; the labor was cheap) and America consumes?
Hint: Not homeowners. Not the local mortgage companies. Not Fannie and Freddie. The answer, not that you'd know it from Bush's speech, is Wall Street. But then, had he blamed Wall Street, he might have had to extend the blame to the laissez-faire extremists who, in shaping Republican policy for the past quarter-century, encouraged and enabled Wall Street to run amok. He might have had to blame Ronald Reagan. He might have had to blame himself. Fat chance of that.
Bush's speech, in fact, was about as far as you can get from Franklin Roosevelt's 1933 inaugural address, in which FDR blamed at length "the money changers" who controlled America's financial system for driving the nation into a ditch. Last night, Bush told the nation that we had more to fear than fear itself. Only he didn't correctly identify who'd made it all so goddamn scary.
Harold Meyerson is editor at large of The American Prospect.
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