November 2008
At the start of October, while the international financial crisis was building, one crash after another, I received one of those round-robin emails from a friend I have known all my life, who for the past couple of decades has been working on Wall Street as a financial analyst after leaving a previous career as a professor of American economic history. Over the years, this man and I have had numerous friendly disputes regarding the merits of corporate capitalism, the ideology of technological and material progress and of endless growth (once described by Edward Abbey as the ideology of the cancer cell), and the likely prospects for the longterm future of the human race. In these debates, my friend has always taken the optimistic side of the argument, I the pessimistic one. For my friend, no problem is insurmountable by human beings, including those problems created by humans in the process of overcoming previous problems. For him, the free market is not simply the engine that drives civilization, it is civilization. In his mind, the new global economy characterized by cross-border investments and financial interdependency, the transfer of America’s manufacturing base overseas, the outsourcing of jobs abroad, and the acquisition of wealth by foreign governments, companies, and individuals was inevitable--it had to happen, simply because that is how the most money is to be made, the most wealth to be realized. (By whom, exactly, I don’t recall his ever mentioning.) I have not spoken with my friend since Wall Street collapsed and the federal government assumed control of the American economy (with an eye to rescuing foreign banks as well), but I am wondering what he is thinking now. Is the present financial catastrophe for him just another problem that human beings worldwide can confidently overcome and put behind them? If so, I wonder what sort of solution there could be for it. The last time the world experienced an economic crisis of this magnitude, it persisted for a dozen years and was “solved” only by the outbreak of the most destructive war in history.
I can discern a clue to my old friend’s response from the article attached to his email message. The article is in fact a very good one, so far as it goes. It was written by Stanley Kurtz, a Senior Fellow with the Ethics and Public Policy Center in Washington. Mr. Kurtz recounts how a community organizer in Chicago named Madeline Talbott used the Community Reinvestment Act, passed by Congress in 1977 for the purpose of “encouraging” banks to lend money to risky borrowers (minority borrowers in particular), to intimidate financial institutions into over-extending themselves by hundreds of millions of dollars in loans and contributions to people who plainly neither deserved nor could afford them. Those banks found not to be in compliance with CRA’s requirements were disallowed from expanding or merging with another bank; over the years, these penalties were further augmented by later amendments and rulings. These legislative and regulatory decisions made banks the easy prey of activist organizations such as ACORN (Association of Community Organizations for Reform Now), of which Madeline Talbott was for many years (in the 1980’s and ‘90s) the Chicago director. Talbott, a fervid practitioner of “direct action,” made a career of filing suit against, or otherwise threatening, banks she considered to be in violation of CRA. As she was getting underway with her campaign of intimidation (usually considered by American courts to be an illegal practice), Ms. Talbott met a community organizer named Barack Obama, whom she hired to train her personal staff at ACORN. In addition to these responsibilities, Obama trained ACORN organizers in the art of confrontational tactics, and secured funding for ACORN through the Woods Fund with which he was then associated. Perhaps ACORN scored its greatest triumph when Talbott succeeded, in 1993, in persuading Fannie Mae to participate in a national pilot program, costing $55 million, to make people with low incomes and “troubled credit histories” eligible for home ownership loans. “If this pilot program works,” said Madeline Talbott, “it will send a message to the lending community that it’s OK to make these kinds of loans.” Just so.
One might suppose the Ethics and Public Policy Center would have ensured that the McCain campaign was alerted to this highly interesting story. If so, the question is why John McCain and Sarah Palin are barnstorming the U.S. as I write, bawling the fearsome names of William Ayers and Jeremiah Wright. A further question is what my friend on Wall Street made of Kurtz’s explanation of the current meltdown. His message was headed “Slowly the truth emerges.” But do we have the whole truth here? I’d say we have about exactly half of it. The other half, Wall Street and the financial community are content to ignore.
The bankers’ timidity in the face of a scruffy lot of “community organizers” (admittedly backed by the politicians and bureaucrats) comports oddly with the financiers’ subsequent recklessness in bundling the subprime mortgages the bankers had written, in selling these securities to one another, and in buying them. Neither the CRA nor ACORN forced these people into their acts of flagrant irresponsibility and stupidity. It is true that both McCain and Obama have ties to Fannie Mae and Freddie Mac, and that the government, Democratic officials especially, thought they recognized the Midas touch at work when they saw it—on behalf of poor people and people of color, after all! And so they looked the other way as the poisonous witch’s brew boiled up and over the side of the caldron. “I’m not worried about Fannie and Freddie’s health, I’m worried that they won’t do enough to help out the economy,” Barney Frank (D.-Mass.), chairman of the House Financial Services Committee, said last year. “That’s why I’ve supported them all these years—so that they can help at a time like this.” Certainly Fannie and Freddie were strong-armed by the politicians into doing what they did. But not Bear Stearns, Lehman Brothers, Wachovia, AIG, Merrill Lynch, and Washington Mutual. Why did they do it?
Setting aside the obvious component of overweening greed, the answer is suggested by the altered composition of the Republican Party over the last several generations. The Northeast once included a bastion of rock-ribbed and highly respectable Republican businessmen and financiers, self-described conservatives and patriots who believed that what was good for Wall Street was good for the country, and who dominated their party. But all that has changed in the past 30 years. Today, the GOP is the party of social conservatives in the South and Southwest, the sort of vulgar, naïve, and credulous people the Northeast establishment despises. Today, that once so-solid establishment does not object to abortion, gay marriage, mass immigration, postmodern morality, and loose and irresponsible business practices. Moreover, it scorns patriotism and embraces globalism. It is solid no longer, and, having become soft-centered itself, it has built its newest mansion on an eroding sand bluff in the Hamptons, with a splendid view of Long Island Sound. It has had its arrogant and greedy way on Wall Street for years. And now, it has got its reward as well. ###
.
Chilton Williamson, Jr.