Steve Fraser

Since the political establishment was committed to laissez-faire, legerdemain by greedy bankers was immune from public scrutiny, which was also useful (for them). But when panic struck, the mighty as well as the meek went down with the ship. Washington felt no obligation to rush to the rescue of the reckless. The bracing, if merciless, discipline of the free market did its work and there was blood on the floor.

By early in the 20th century, however, the savage anarchy of the financial marketplace had been at least partially domesticated under the reign of the greatest financier of them all, J.P. Morgan. Ever since the panic of 1907, the legend of Morgan’s heroics in single-handedly stopping a meltdown that threatened to become worldwide, the iron discipline he imposed on more timorous bankers, has been told and retold each time an analogous implosion looms.

Indeed, last week’s news carried its fair share of 1907 Morgan stories, trailing in their wake an implicit wistfulness. They all asked, in effect: Where is the old boy when we need him?

Back then, with Morgan performing his role as the nation’s unofficial private central banker, Teddy Roosevelt’s administration continued to keep its distance from Wall Street, still unready to offer salvation to desperate financial oligarchs. Not normally chummy with Morgan and his crowd, Roosevelt did cheer from the sidelines as the über-banker performed his rescue operation.

As it turned out, though, the days of Washington agnosticism about Wall Street were numbered. The economy had become too complex and delicate a mechanism and, in 1907, had come far too close to meltdown — even Morgan’s efforts couldn’t prevent several years of recession — to leave financial matters entirely in the hands of the private sector.

First came the Federal Reserve. It was established in 1913 under President Woodrow Wilson as a quasi-public authority meant to regulate the country’s credit markets — albeit one heavily influenced by the viewpoints and interests of the country’s principal bankers. That worked well enough until the Great Crash of 1929 and the Great Depression that followed and lasted until World War II. The depth of the country’s trauma in those long years vastly expanded the scope of Washington’s involvement in the financial marketplace.

President Franklin D. Roosevelt’s New Deal did, as a start, engage in some bailout operations. The Reconstruction Finance Corporation, actually created by President Herbert Hoover, continued to rescue major railroads and other key businesses, while some of the New Deal’s efforts to help homeowners also rewarded real estate interests. The main emphasis, however, now switched to regulation. The Glass-Steagall Banking Act, the two laws of 1933 and 1934 regulating the stock exchange, the creation of the Securities and Exchange Commission and other similar measures subjected the financial sector to fairly rigorous public supervision.

This lasted for at least two political generations. Wall Street, after all, had been convicted in the court of public opinion of reckless, incompetent, self-interested, even felonious behavior with consequences so devastating for the rest of the country that government was licensed to make sure it didn’t happen again.

The undoing of that New Deal regulatory regime, and its replacement, largely under Republican administrations (although Glass-Steagall was repealed on Bill Clinton’s watch), with what some have called the “socialization of risk” has contributed in a major way to the mess we’re in today. Beginning most emphatically with the massive bailout of the savings and loan industry in the late 1980s, Washington committed itself, at least under conditions of acute crisis, to offloading the risks taken by major financial institutions, no matter how irrationally speculative and wasteful, onto the backs of the American taxpaying public.

Despite free-market/anti-big-government rhetoric, real-life Washington has tacitly acknowledged the degree to which our national economy has become dependent on the financial sector (finance, insurance and real estate — or FIRE). It will do whatever it takes to keep it afloat.

This applies not only to particular institutions like Bear Stearns, or even to mortgage mega-firms like Fannie and Freddie, but to finance in general. When it seemed necessary, public monies were indeed funneled in the general direction of the banking/brokerage community to shore up the whole rickety structure. This allowed one burst bubble — the dot-com debacle — to be replaced by another, namely our late, lamented mortgage/collaterized-debt-obligation bonanza, just now dramatically going down the tubes.

Backstopping the present bailout is the ever-credulous, put-upon American public with its presumably inexhaustible resources. Even while Washington was instituting the periodic “socialization” of bad debts, it was systematically abandoning the New Deal’s commitment to regulation. That, of course, was in the very period when financial markets became ever more arcane, ever less comprehensible even to their Frankenstein-ian inventors and ever more in need of monitoring. So the “socialization of risk” was accompanied by the “privatization of reward,” which now is likely to prove a truly deadly combination.

That the crisis has now reached a newly terrifying stage is suggested by Washington’s sudden willingness to depart from the new orthodoxy and let the huge investment bank, Lehman Brothers, go under. Some may see in this a steely return to a laissez-faire faith. More likely, it represents wholesale confusion on the part of Bush administration and Federal Reserve policymakers about what to do, even as all endangered businesses have come to take it for granted that Washington will toss them a life preserver when they need it.

The times call for a new departure. The next administration, which will surely enter office under the greatest economic pressure in memory, must confront reality. The financial system is out of control and has led the economy into a wildly turbulent sea of heavily leveraged speculation.

It’s time for a reversal of course. Stringent reregulation of FIRE is not enough anymore. Washington’s mission may, at this late date, be an even greater one than Roosevelt’s New Deal faced. The government must figure out how to deploy its power to shift the flow of investment capital out of the minefields of speculative paper transactions and back into productive channels that will help meet the material needs of American society. Real value must be created in place of chimeras. In the meantime, we all have ringside seats — in fact, we’re far too close to the action for comfort — as another Gilded Age is ending. What comes after is, in part, up to us.

Inspired in turn by Swift, I want to suggest that we put in motion a similar undertaking: on Jan. 16, Martin Luther King Day, citizens from around the country should gather at the New York Stock Exchange on Wall Street. Let’s call this macabre gathering — with luck and even worse times, it should be mammoth — “We Surrender” or “Restore Debtor’s Prisons” or “De-Fault Is Ours” or “Collateralize Us.” And plan on a mirthful day of mourning.

The basic idea is that we offer ourselves up, 99 percent of us anyway, on the altar of high finance as a sacrifice to the bond markets. It was Karl Marx who first observed that high finance is “the Vatican of capitalism.” How right he turned out to be — right with a vengeance!

The Death of Democracy

Whole governments, democratically elected, are collapsing, or abdicating on orders from our secular version of the papacy. Who will weep for the passing of Italian Prime Minister Silvio Berlusconi? Not many, surely. Still, it’s appalling that, in Italy as in Greece, governing authority has been usurped by technocrats, elected by no one, answerable only to the European institutions of high finance that installed them in power.

At last count, eight governments of the European Union have come and gone, suffering the wrath of our new god. Other European governments barely hang on and scurry to curry favor with the bond market, proposing in effect to eat their own children and the futures of 99 percent of their people, if that’s what it takes to make high finance happy. More will follow. By the time this piece was published, who would be surprised if yet another government had bitten the dust.

What about here in the USA? That capitalism and democracy go together (like love and marriage in that old song) has been the imperial boast conveyed to the rest of the world by American banks and diplomats and presidents and Marines for a century — and more recently, by crony capitalist outfits like KBR and predator drones. Today, at home and abroad that particular gospel seems a sorry piece of hypocrisy. Capitalism has become a synonym for — to use an old word on its way back just in time — plutocracy, not democracy. The Obama administration like the Bush administration before it, and the one before that, and the one before that, has bent its knee to “the Vatican of capitalism.”

Take Our Children, Please!

Anticipating Swift, we are already eating our own children or, at least, the futures available to them. My suggestion is to make the most of that reality.

When we assemble on Jan. 16, we should arrive as supplicants, bringing the deeds to our homes, if we still have them. We could come dressed as credit-default swaps or collateralized debt obligations. (Use your imagination!)

You’ll want to turn in your subprime mortgage documents. And do you really need that mobile home or tent? And certainly, you’ll want to offer up your children to Wall Street if they’re young enough to make a “delicious” and nourishing meal. If a bit older, haul along that creaky swing set from your backyard, or dilapidated blackboards and outmoded computer consoles from your child’s underfunded, disintegrating school. Bring with you the paints, recorders and stage props once used by art, music and theater teachers, but made superfluous when their programs were cut by schools too poor to afford them.

If your children are older still, and waterlogged from the college loans that put them “underwater” before they even had their first jobs, why not donate those debts as securitized gifts to the Street? Better yet: Give back their college diplomas.

If you can, cart along vats of heating oil or coal bins to symbolize the winter fuel that you can no longer afford. (Thank god for global warming!) Declare yourself undocumented or at the very least “undeserving” (a prematurely retired and wonderfully apt word used by the 1 percent back in the late 19th century to describe those who apparently preferred starving to working). Turn in your food stamps and unemployment insurance checks.

If you happen to have a job, return it or tithe a portion of your wages or pension for the cause.

Give back your votes; they do you no good, but might placate The Street. If you’re not too shy, donate your medical records, X-rays, CAT scans and IV drips; you won’t need them anymore since the odds are you won’t be able to afford healthcare, and Wall Street can use them. After all, who is more endlessly ingenious when it comes to turning misery into money?

Here’s a really big Jan. 16 gesture if you’re up for it: securitize your body parts. What, for example, is a leg- or ear- or brainpan-derivative really worth on the open market? You don’t know, but Wall Street will. And you can think of it as your contribution to solving the deficit dilemma, which keeps the 1 percent awake at night.

My poor imagination is hardly up to the task of imagining all the ways in which we might express our fealty to Wall Street’s financiers. But we, the partisans of OWS, are if nothing else a remarkably creative bunch. I’m confident that, when we get together on the 16th of January, the world will marvel at our inventiveness.

An Archipelago of Isolation Chambers

However “Swiftian” our mood, signage and costumes, however much we retain the vital capacity to laugh at our own predicament and make fun of our tormentors, what I’m proposing is, in the end, serious business. A massive “Collateralize Us” day is doable — and through its wit could embolden us and shame those in charge of the care and feeding of the 1 percent. More important, it could put in the most graphic terms, where everyone could see it, a core indictment of a system in ruins and perhaps even hint at what might replace it.

Why pick a single day and a single place to symbolically immolate our own children (and their children to come)? Why not continue to occupy as many places as we can on all days? We should!

However, the simple epiphany that OWS allowed millions to experience was its blunt discovery that Wall Street, the world of financial mis-engineers and predatory speculators, was the taproot of our multiple dilemmas. For people around the globe, that street remains, at least symbolically, the site where our misbegotten Age of Austerity was born. So it makes continuing sense to persevere in pressing that singular insight, in pursuing a determination to confront a dysfunctional system where it originates.

So, too, local governments around the country have consistently used their police forces to cage, disperse or otherwise fragment local occupations and may even have coordinated their police “occupations” with one another. “Our streets” are ever less “ours” in any meaningful sense. The geography of democracy is being transformed into an archipelago of isolation chambers.

But that won’t be the case if untold numbers assemble in New York on the 16th. If every movement and organization that has had anything to do with OWS over these last months were to collaborate in mobilizing, even on the bitterest of January days, the streets will again be “ours.”

Martin Luther King and Jubilee Day

Then, of course, there is the resonant significance of the day itself. Martin Luther King was a lawbreaker for justice. So, too, were all those who defied “legitimate authority” alongside him. I’m not suggesting we break the law. I do suggest we exercise rights that are growing weak, and will grow weaker, if allowed to atrophy further. And I do suggest as well that we, like King, become the midwives of new law.

If credit default swaps and structured investment vehicles are legal, as they are, and if marching in the streets is becoming ever less so, as it is, then on Jan. 16 we should begin to turn that kind of preposterous world upside down. What was lawful shall become criminal and what was denied to the people shall be taken by them and made good law.

When we gather on the 16th of January at the corner of Broad and Wall streets — don’t worry, you’ll find it! — in an act of unprecedented symbolic self-sacrifice, we might also make one modest request. With Martin Luther King in mind, let us propose that Jan. 16 also become Jubilee Day.

Such days were a more or less regular part of the calendar in biblical times and long after. It was the moment when common people were relieved of their crushing debts and the world was allowed to start over again. Our own version of such a “day of forgiveness” would focus on all the debts with which the 1 percent have burdened so many working people.

On that day, we might resume a conversation about how to start the world anew. It would undoubtedly be a conversation about all the vital resources that everyone depends on to enjoy life, be healthy and have a future worthy of bequeathing to our children. It would certainly be about how these must never again be allowed to congeal in the hands of an infinitesimal elite organized in a tiny number of private institutions indifferent to the commonweal and immune from censure.

See you on the 16th. Bring your children.

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After an absence of well over half a century, Wall Street is back, center stage, as the preferred American icon of revulsion, a status it held for a fair share of our history. And we can thank a small bunch of campers in Manhattan’s Zuccotti Park for hooking us up to a venerable tradition of resistance and rebellion.

The Street of Torments

Peering back at a largely forgotten terrain of struggle against “the Street,” so full of sound and fury signifying quite a lot, it’s astonishing — to a historian of Wall Street, at least — that the present movement didn’t happen sooner. It’s already hard to remember that only weeks ago, three years into the near shutdown of the world financial system and the Great Recession, an eerie unprotesting silence still blanketed the country.

Stories accumulated of Wall Street greed and arrogance, astonishing tales of incompetence and larceny. The economy slowed and stalled. People lost their homes and jobs. Poverty reached record levels. The political system proved as bankrupt as the big banks. Bipartisan consensus emerged — but only around the effort to save “too big to fail” financial Goliaths, not the legions of victims their financial wilding had left in its wake.

The political class then prescribed what people already had plenty of: yet another dose of austerity plus a faith-based belief in a “recovery” that, for 99 percent of Americans, was never much more than an optical illusion. In those years, the hopes of ordinary people for a chance at a decent future withered, and bitterness set in.

Strangely, however, popular resistance was hard to find. In the light of American history, this passivity was surpassingly odd. From decades before the Gilded Age of the late 19th century through the Great Depression, again and again Wall Street found itself in the crosshairs of an outraged citizenry mobilized thanks to political parties, labor unions, or leagues of the unemployed. Such movements were filled with a polyglot mix of middle-class antitrust reformers, bankrupted small businessmen, dispossessed farmers, tenants and sharecroppers, out-of-work laborers, and so many others.

If Occupy Wall Street signals the end of our own, atypical period of acquiescence, could a return to a version of “class warfare” that would, once upon a time, have been familiar to so many Americans be on the horizon? Finally!

What began as a relatively sparsely attended and impromptu affair has displayed a staying power and magnetic attractiveness that has taken the country, and above all the political class, by surprise. A recent rally of thousands in lower Manhattan, where demonstrators marched from the city’s government center to Zuccotti Park, the location of the “occupiers” encampment, was an extraordinarily diverse gathering by any measure of age, race or class. Community organizations, housing advocates, environmentalists, and even official delegations of trade unionists not normally at ease hanging out with anarchists and hippies gave the whole affair a social muscularity and reach that was exhilarating to experience.

Diversity, however, can cut both ways. Popular protest, to the degree that there’s been much during the recent past — and mainly over the war in Iraq — has sometimes been criticized for the chaotic way it assembled a grab-bag of issues and enemies, diffuse and without focus. Occupy Wall Street embraces diverse multitudes but this time in the interest of convergence. In its targeting of “the street of torments,” this protean uprising has, in fact, found common ground. To a historian’s ear this echoes loudly.

Karl Marx described high finance as “the Vatican of capitalism,” its diktat to be obeyed without question. We’ve spent a long generation learning not to mention Marx in polite company and not to use suspect and nasty phrases like “class warfare” or “the reserve army of labor,” among many others.

In times past, however, such phrases and the ideas that went with them struck our forebears as useful, even sometimes as true depictions of reality. They used them regularly, along with words like “plutocracy,” “robber baron” and “ruling class,” to identify the sources of the economic exploitation and inequality that oppressed them, as well as to describe the political disenfranchisement they suffered and the subversion of democracy they experienced.

Never before, however, has “the Vatican of capitalism” captured quite so perfectly the specific nature of the oligarchy that’s run the country for a generation and has now run it into the ground. Even political consultant and pundit James Carville, no Marxist he, confessed as much during the Clinton years when he said the bond market “intimidates everybody.”

Perhaps that era of everyday intimidation is finally ending. Here are some of the signs of it — literally — from that march I attended: “Loan Sharks Ate My World” (illustrated with a reasonable facsimile of the Great White from “Jaws”), “End the Federal Reserve,” “Wall Street Sold Out, Let’s Not Bail Out,” “Kill the Over the Counter Derivative Market,” “Wall Street Banks Madoff Well,” “The Middle Class Is Too Big to Fail,” “Eat the Rich, Feed the Poor,” “Greed Is Killing the Earth.” During the march, a pervasive chant — “We are the 99 percent” — resoundingly reminded the bond market just how isolated and vulnerable it might become.

And it is in confronting this elemental, determining feature of our society’s predicament, in gathering together all the multifarious manifestations of our general dilemma right there on “the street of torments,” that Occupy Wall Street — even without a program or clear set of demands, as so many observers lament — has achieved a giant leap backward, summoning up a history of opposition we would do well to recall today.

A Century of Our Streets and Wall Street

One young woman at the demonstration held up a corrugated cardboard sign roughly felt-tip-markered with one word written three times: “system,” “system,” “system.” That single word resonates historically, even if it sounds strange to our ears today. The indictment of the presumptive elites, especially those housed on Wall Street, the conviction that the system over which they presided must be replaced by something more humane, was a robust feature of our country’s political and cultural life for a long century or more.

When in the years following the American Revolution, Jeffersonian democrats raised alarms about the “moneycrats” and their counterrevolutionary intrigues — they meant Alexander Hamilton and his confederates in particular — they were worried about the installation in the New World of a British system of merchant capitalism that would undo the democratic and egalitarian promise of the Revolution.

When followers of Andrew Jackson inveighed against the Second Bank of the United States — otherwise known as “the Monster Bank” — they were up in arms against what they feared was the systematic monopolizing of financial resources by a politically privileged elite. Just after the Civil War, the Farmer-Labor and Greenback political parties freed themselves of the two-party runaround, determined to mobilize independently to break the stranglehold on credit exercised by the big banks back East.

Later in the 19th century, Populists decried the overweening power of the Wall Street “devil fish” (shades of Matt Taibbi’s “giant vampire squid” metaphor for Goldman Sachs). Its tentacles, they insisted, not only reached into every part of the economy, but also corrupted churches, the press and institutions of higher learning, destroyed the family, and suborned public officials from the president on down. When, during his campaign for the presidency in 1896, the Populist-inspired “boy orator of the Platte” and Democratic Party candidate William Jennings Bryan vowed that mankind would not be “crucified on a cross of gold,” he meant Wall Street, and everyone knew it.

Around the turn of the century, the antitrust movement captured the imagination of small businessmen, consumers and working people in towns and cities across America. The trust they worried most about was “the Money Trust.” Captained by J.P. Morgan, “the financial Gorgon,” the Money Trust was skewered in court and in print by future Supreme Court justice Louis Brandeis, subjected to withering congressional investigations, excoriated in the exposés of “muckraking” journalists, and depicted by cartoonists as a cabal of prehensile Visigoths in death-heads.

As the 20th century began, progressive reformers in state houses and city halls, socialists in industrial cities and out on the prairies, strikebound workers from coast to coast, working-class feminists, antiwar activists, and numerous others were still vigorously condemning that same Money Trust for turning the whole country into a closely held system of financial pillage, labor exploitation and imperial adventuring abroad. As the movements made clear, everyone but Wall Street was suffering the consequences of a system of proliferating abuses perpetrated by “the Street.”

The tradition the Occupy Wall Street demonstrators have tapped into is a long and vibrant one that culminated during the Great Depression. Then as now, there was no question in the minds of “the 99 percent” that Wall Street was principally to blame for the country’s crisis (however much that verdict has since been challenged by disputatious academics).

Insurgencies by industrial workers, powerful third-party threats to replace capitalism with something else, rallies and marches of the unemployed, and, yes, occupations, even seizures of private property, foreclosures forestalled by infuriated neighbors, and a pervasive sense that the old order needed burying had their lasting effect. In response, the New Deal attempted to unhorse those whom President Franklin Roosevelt termed “economic royalists,” who were growing rich off “other people’s money” while the country suffered its worst trauma since the Civil War. “The Street” trembled.

“System, System, System”: It would be foolish to make too much of a raggedy sign — or to leap to conclusions about just how lasting this Occupy Wall Street moment will be and just where (if anywhere) it’s heading. It would be crazily optimistic to proclaim that our own pitiful age of acquiescence has ended.

Still, it would be equally foolish to dismiss the powerful American tradition that the demonstrators of this moment have tapped into. In the past, Wall Street has functioned as an icon of revulsion, inciting anger, stoking up energies, and summoning visions of a new world that might save the New World.

It is poised to play that role again. Remember this: In 1932, three years into the Great Depression, most Americans were more demoralized than mobilized. A few years later, all that had changed as “Our Street, Not Wall Street” came alive. The political class had to scurry to keep up. Occupy Wall Street may indeed prove the opening act in an unfolding drama of renewed resistance and rebellion against “the system.”

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This is as it should be — and as it once was. When in March 1933, a few months after Coolidge gave up the ghost, Franklin Delano Roosevelt was inaugurated president, people looked forward to audacious changes, even if they had little or no idea just what, in concrete terms, that might mean. If Coolidge, an iconic representative of the old order, knew that the ancien régime was dead, millions of ordinary Americans had drawn the same conclusion years earlier. Full of fear, depressed and disillusioned, they nonetheless had an appetite for the untried. Like Obama, FDR had, during his campaign, encouraged feverish hopes with no less vaporous references to a “new deal” for Americans.

Brain trust versus brainiacs

Yet today, something is amiss. Even if everyone is now using the Great Depression and the New Deal as benchmarks for what we’re living through, Act I of the new script has already veered away from the original.

A suffocating political and intellectual provincialism has captured the new administration in embryo. Instead of embracing a sense of adventurousness, a readiness to break with the past so enthusiastically promoted during the campaign, Obama seems overcome with inhibitions and fears.

Practically without exception he has chosen to staff his government at its highest levels with refugees from the Clinton years. This is emphatically true in the realms of foreign and economic policy. It would, in fact, be hard to find an original idea among the new appointees being called to power in those realms — some way of looking at the American empire abroad or the structure of power and wealth at home that departs radically from views in circulation a decade or more ago. A team photo of Obama’s key Cabinet and other appointments at Treasury, Health and Human Services, Commerce, the President’s Economic Recovery Advisory Board, the State Department, the Pentagon, the National Security Council and in the U.S. Intelligence Community, not to speak of senior advisory posts around the president himself, could practically have been teleported from perhaps the year 1995.

Recycled Clintonism is recycled neo-liberalism. This is change only the brainiacs from Hyde Park and Harvard Square could believe in. Only the experts could get hot under the collar about the slight differences between “behavioral economics” (the latest academic fad that fascinates some high level Obama-ites) and straight-up neo-liberal deference to the market. And here’s the sobering thing: Despite the grotesque extremism of the Bush years, neo-liberalism also served as its ideological magnetic north.

Is this parochialism, this timorousness and lack of imagination, inevitable in a period like our own, when the unknown looms menacingly and one natural reaction is certainly to draw back, to find refuge in the familiar? Here, the New Deal years can be instructive.

Roosevelt was no radical; indeed, he shared many of the conservative convictions of his class and times. He believed deeply in both balanced budgets and the demoralizing effects of relief on the poor. He tried mightily to rally the business community to his side. For him, the labor movement was terra incognita and — though it may be hard to believe today — played no role in his initial policy and political calculations. Nonetheless, right from the beginning, Roosevelt cobbled together a Cabinet and circle of advisors strikingly heterogeneous in its views, one that, by comparison, makes Obama’s inner sanctum, as it is developing today, look like a sectarian cult.

Heterogeneous does not mean radical. Some of FDR’s early appointments — as at the Treasury Department — were die-hard conservatives. Jesse Jones, who ran the Reconstruction Finance Corporation, a Hoover administration creation, retained by FDR, that had been designed to rescue tottering banks, railroads and other enterprises too big to fail, was a practitioner of business-friendly bailout capitalism before present Treasury Secretary Henry Paulson was even born.

But there was also Henry Wallace as secretary of agriculture, a Midwestern progressive who would become the standard bearer for the most left-leaning segments of the New Deal coalition. He was joined at the Agriculture Department — far more important then than now — by men like Mordecai Ezekiel, who was prepared to challenge the power of the country’s landed oligarchs.

Then there were corporatists like Raymond Moley, Donald Richberg and General Hugh Johnson. Moley was an original member of FDR’s legendary “brain trust” (a small group of the president’s most influential advisors who often held no official government position). Richberg and Johnson helped design and run the National Recovery Administration (the New Deal’s first and failed attempt at industrial recovery). All three men were partial to the interests of the country’s peak corporations. All three wanted them released from the strictures of the Sherman Anti-Trust Act so that they could collaborate in setting prices and wages to arrest the killing deflation that gripped the economy. But they also wanted these corporate behemoths and the codes of competition they promulgated subjected to government oversight and restraints.

Meanwhile, Felix Frankfurter (another confidant of FDR’s and a future Supreme Court justice), aided by the behind-the-scenes efforts of Supreme Court Justice Louis Brandeis, fiercely contested the influence of the corporatists within the new administration, favoring anti-trust and then-new Keynesian approaches to economic recovery. Secretary of Labor Frances Perkins used her extensive ties to the social work community and the labor movement to keep an otherwise tone-deaf president apprised of portentous rumblings from that quarter. In this fashion, she eased the way for the passage of the Wagner Act that legislated the right to organize and bargain collectively and that ended the reign of industrial autocracy in the workplace.

Roosevelt’s “brain trust” also included Rexford Tugwell. He was an avid proponent of government economic planning. Another founding member of the “brain trust” was Adolph Berle, who had published a best-selling, scathing indictment of the financial and social irresponsibility of the corporate elite just before FDR assumed office.

People like Tugwell and others, including future Federal Reserve Board chairman Marriner Eccles, were believers in Keynesian deficit spending as the road to recovery and argued fiercely for this position within the inner councils of the administration, even while Roosevelt himself remained, until later in his presidency, an orthodox budget balancer.

All of these people — the corporatists and the Keynesians, the planners and the anti-trusters — were there at the creation. They often came to blows. A genuine administration of “rivals” didn’t faze FDR. He was deft at borrowing all of, or pieces of, their ideas, then jettisoning some when they didn’t work, and playing one faction against another in a remarkable display of political agility. Roosevelt’s tolerance of real differences stands in stark contrast to the new administration’s cloning of the Clinton-era brainiacs.

It was this openness to a variety of often untested solutions — including at that point Keynesianism — that helped give the New Deal the flexibility to adjust to shifts in the country’s political chemistry in the worst of times. If the New Deal came to represent a watershed in American history, it was in part due to the capaciousness of its imagination, its experimental elasticity and its willingness to venture beyond the orthodox. Many failures were born of this, but so, too, many enduring triumphs.

Beyond the bailout state

Why, at least so far, is the Obama approach so different? Some of it no doubt has to do with the same native caution that caused FDR to navigate carefully in treacherous waters. But some of it may result from the fallout of history. Because the Great Depression and the New Deal happened, nothing can ever really be the same again.

We are accustomed to thinking of the Bush years — maybe even the whole era from the presidency of Ronald Reagan on — as a throwback to the ’20s or even the laissez-faire golden years of the Gilded Age of the late nineteenth century. In some respects, that’s probably accurate, but in at least one critical way it’s not. Back in those days, faced with a potentially terminal financial crisis, the government did nothing, simply letting the economy plunge into depression. This happened repeatedly until 1929, when it happened again.

Since the New Deal, however, inaction has ceased to be a viable option for Washington. State intervention to prevent catastrophe has become an unspoken axiom of political life in perilous times. Of course, thanks to regulatory mechanisms installed during the New Deal years, there was no need to engage in heroic rescues — not, at least, until the triumph of deregulation in our own time.

Then crises began to erupt with ever greater frequency — the stock market crash of 1987, the savings and loan collapse at the end of that decade, the massive Latin-American debt defaults of the early 1990s, the collapse of the economies of the Asian “tigers” in the mid-1990s, the near bankruptcy of the then-huge hedge fund, Long Term Capital Management, later in that decade, the dot-com implosion at the turn of the century, climaxing with the general global collapse of the present moment. Beginning perhaps with the bailout of the Chrysler Corporation in the late 1970s, these recurring crises have been met with increasingly strenuous efforts to stop the bleeding by what some have called “the bailout state.”

The Resolution Trust Corporation, created to rescue the savings and loan industry, first institutionalized what Kevin Phillips has since described as a new political economy of “financial mercantilism.” Under this new order the state stands ready to backstop the private sector — or at least the financial sub-sector which, for the past quarter century, has been the driving engine of economic growth — whenever it undergoes severe stress.

Today, the starting point for all mainstream policymakers, even those who otherwise preach the virtues of the free market and the evils of big government, is the active intervention of the state to prevent the failure of private-sector institutions considered “too big to fail” (as with most recently Citigroup and the insurance company AIG). So, too, the tolerance level for deficit spending, not only for military purposes but, in extremis, to help stop ordinary people from going under, is infinitely higher than in 1932. Ronald Reagan was prepared to live with such spending, if necessary, even as he removed portraits of Thomas Jefferson and Harry S. Truman from the Cabinet Room and replaced them with a canvas of Calvin Coolidge.

The question for our “new era” — not one our New Deal ancestors would have thought to ask — has become: How do we get beyond the bailout state? This is one crucial realm where genuinely new thinking and new ideas are badly needed.

At the moment, as best we can make out, the bailout state is being managed in secret and apparently in the interests, above all, of those who run the financial institutions being “rescued.” Often, we don’t actually know who is getting what from the Federal Reserve and the Treasury, or on what terms, or even which institutions are being helped and which aren’t, or  what our public monies are actually being used for.

What we do know, however, is anything but encouraging. It includes tax exemptions for merging banks, prices for public-equity stakes in failing outfits that far exceed what is being paid by governments (or even private investors) abroad for similar holdings. Add to this a stark lack of accountability, aggravated by the fact that the U.S. government has neither voting rights (nor even a voice) on boards of directors whose firms would be in bankruptcy court without Washington’s aid.

Living in an empire of depression

Are we, then, witnessing the birth of some warped, exceedingly partial version of state capitalism — partial, that is, to the resuscitation of the old order? If so, lurking within this string of bum deals might there not be a great opportunity? Putting the economy and country back together will require massive resources directed toward common purposes. There is no more suitable means of mobilizing and steering those resources than the institutions of democratic government.

Under the present dispensation, the bailout state makes the government the handmaiden of the financial sector. Under a new one, the tables might be turned. But who will speak for that option within the limited councils of the Obama team?

A real democratic nationalization of the banks — good value for our money rather than good money to add to their value — should be part of the policy agenda up for discussion in the Obama era. As things now stand, the public supplies the loans and the investment capital, but the key decisions about how they are to be deployed remain in private hands. A democratic version of nationalizing the financial system would transfer these critical decisions to new institutions created by Congress and designed to pursue public, not private, objectives. How to subject the flow of credit and investment capital to public control ought to be on the drawing boards if we are to look beyond the old New Deal to a new one.

Or, for instance, if we are to bail out the auto industry, which we should — millions of jobs, businesses, communities and what’s left of once powerful and proud unions are at stake — then why not talk about its nationalization, too? Why not create a representative body of workers, consumers, environmentalists, suppliers and other interested parties to supervise the industry’s reorganization and retooling to produce, just as the president-elect says he wants, new green means of transportation — and not just cars?

Why not apply the same model to the rehabilitation of the nation’s infrastructure; indeed, why not to the reindustrialization of the country as a whole? If, as so many commentators are now claiming, what lies ahead is the kind of massive, crippling deflation characteristic of such crises, then why not consider creating democratic mechanisms to impose an incomes policy on wages and prices that works against that deflation?

Overseas, if everything isn’t up for discussion — and it most certainly isn’t — it ought to be. What happens there bears directly on our future here at home. After all, we live in the empire of depression. America’s favorite export for more than a decade has been a toxic lineup of securitized debt. Having ingested it in lethal amounts, every economy in the world from Iceland’s and Germany’s to Russia’s and Indonesia’s is either folding up or threatening to fold up like an accordion under the pressure of economic disaster.

Until now, the American way of life, including its economy of mass consumption, has depended on maintaining the country’s global preeminence by any means possible: economic, political and, in the end, military. The news of the Bush years was that, in this mix, Washington reached for its six-guns so much more quickly.

A global depression will challenge that fundamental hierarchy in every conceivable way. The United States can try to recapture its imperiled hegemony by methods familiar to the Obama-Clinton-Bush (the father) foreign policy establishment, that is, by using the country’s waning but still intimidating economic and military muscle. But that’s a devil’s game played at exorbitant cost which will further imperil the domestic economy.

It might, of course, be possible, as in domestic affairs, to try something new, something that embraces the public redevelopment of America in concert with the global South. This would entail at a minimum a radical break with the “Washington Consensus” of the Clinton years in which the United States insisted that the rest of the world conform to its free market model of economic behavior. It would establish multilateral mechanisms for regulating the flow of investment capital and severe penalties and restrictions on speculation in international markets. Most of all, it would mean lifting the strangulating grip of American military might that now girdles the globe.

All of this would require a capacity for reimagining foreign affairs as something other than a zero-sum game. So far, nothing in Obama’s lineup of foreign policy and national security mandarins suggests this kind of potential policy deviance. Again, no Rooseveltian “brain trust” is in sight, even though unorthodoxies are called for, not just because of the hopes Obama’s victory have aroused, but because of the urgency of our present circumstances.

If original thinking doesn’t find a home somewhere within this forming administration soon, it will be an omen of an even more troubled future to come, when options not even being considered today may be unavailable tomorrow. Certainly, Americans ought to expect something better than a trip down (the grimmest of) memory lanes into the failed neo-liberalism of yesteryear.

For the better part of a century, from the 1870s through the tumultuous years of the Great Depression and the New Deal, the specter of Wall Street haunted the popular political imagination. For Populists it was the “Great Satan,” its stranglehold over the country’s credit system being held responsible for driving the family farmer to the edge of extinction and beyond. For legions mobilized in the anti-monopoly movement, Wall Street was the prime engine house of monopoly capitalism, leaving behind it a trail of victimized businesses, consumers, captive municipalities, and crushed workers. For Progressive reformers around the turn of the 20th century, Wall Street’s “money trust” was the mother of all trusts, its tentacles — and the octopus was indeed a popular image of the time — choking off economic opportunity for all but a favored few. Its political power in Congress, in presidential cabinets, in statehouses, in both major political parties was seen as so overwhelming as to threaten to suffocate democracy itself.

All the periodic panics and depressions — 1873, 1884, 1893, 1907, and 1913 — that, with numbing regularity, punctuated economic life until the Crash of ’29 and the Great Depression brought the house down, seemed to begin on the Street. And whether they actually began there or not, all the misery that followed in their wake — the homelessness, the armies of tramps and hobos, the starvation, the bankruptcies, the broken families, the crushing sense of dispossession — was regularly laid at the feet of the Street.

Despite the hot-tempered invective directed its way, the “Great Satan” didn’t face its comeuppance until the New Deal in the 1930s. Then, all its transgressions — its speculative greed, its felonious insider-dealing, its cynical manipulation of popular credulity, its extravagant incompetence and seemingly limitless capacity for self-delusion — left Wall Street truly vulnerable. Its reputation had struck bottom.

Wall Street’s Invisible Decades

Just like our Wall Street heroes of the recent past, so, too, back in the 1920s the savants of the Street claimed credit for the rickety prosperity of the Jazz Age. With the Crash they took the blame for the disaster, just as they had taken the credit for the prosperity, and were despised for their hypocrisy as well. Just as seems to be starting to happen today, congressmen, some of whom had spent their careers genuflecting before the titans of Wall Street, suddenly hauled them before investigating committees, there to be defrocked, treated to a withering storm of biblically inspired injunctions and Shakespearean curses, and indicted in the court of public opinion. Wall Street was, as it now seems about to be again, excommunicated.

Suddenly weak beyond compare, the Street was powerless to resist Franklin D. Roosevelt’s regulatory state. In rapid succession came the Glass-Steagall banking act and the Federal Deposit Insurance Corp., the two securities acts of 1933 and 1934, the creation of the Securities and Exchange Commission (SEC), the Public Utility Holding Company Act, and much more. When, in 1936, the president summoned the people to battle against the “economic royalists,” everyone knew just whom he was talking about.

It’s long been said that FDR’s New Deal saved capitalism from itself. That is true. One ironic consequence of that fateful turn of events was, politically speaking, to cloak Wall Street in invisibility. After all the shouting was over, after the installation of legislative reforms had further chastened an already cowed Street and constrained its penchant for financial wilding, it ceased to function as the magnetic north for all those troubled by the inequities, injustices, and deformations of capitalism.

During the long prosperity of the postwar years from 1945 to 1970, when the income and wealth inequalities that had always been associated with Wall Street narrowed dramatically — economic historians know this as “the great compression” — news of the Street retreated to the business pages and remained there. Except for an occasional act of street theater, even in the tumultuous 1960s, the Street remained largely exempt from sustained political criticism. Once the bête noire of all those who found themselves in opposition to the ravages of laissez-faire capitalism, Wall Street had been neutered.

Just as remarkable is how long that immunity from criticism lasted. After all, Wall Street’s record over the past quarter-century is nothing to boast about — unless, that is, you happened to have made your living on it or in its environs.

Beginning in the 1980s, the Street supervised and profited handsomely from the de-industrialization of America. “Lean and mean” capitalism, the watchword of the Reagan era, added up to the systematic dismantling of the core of American industry. This was done in the interests of “shareholder value,” as well, of course, as the bounteous short-term returns offered by the merger, acquisition, and junk-bond mania of those years. Did the rise of a speculative economy of virtual wealth and the fall of an economy that had once employed millions productively at decent wages disturb the political equanimity of American public life? Barely.

When the financial regulatory apparatus of the New Deal was weakened, piece by piece, or simply eliminated by a triumphant conservatism, the economy began to re-experience the cycles of bubble and bust so familiar to previous generations of Americans. In 1987, the stock market briefly collapsed. Then, during the late 1980s, a large-scale savings and loan bailout was accompanied by the rescue of banks caught short holding shaky Latin American debt. Not long after that came the savaging of the “Asian tiger” economies by Thomas Friedman’s “electronic herd” of speculators, and the government-arranged bailout of that period’s biggest hedge fund, Long-Term Capital Management.

Before the country could catch its breath, matters got really serious with the popping of the dot-com bubble, Enronization, and finally, of course, our current catastrophe. Through all of this — until now — the political fallout was virtually nil. Sarbanes-Oxley, the act passed by Congress in 2002 in response to an avalanche of Wall Street and corporate scandals that began with Enron, was a remarkably tepid piece of reformist legislation, given the scale of the debauch; yet, within moments of its passage, howls of protest could be heard from our offended friends on the Street, grievous complaints treated with all due seriousness by the media, somehow still infatuated with Wall Street’s rainmakers.

The Return of the Repressed

No longer. There is a new agenda in America and it calls for re-regulation, recovery, and retribution. It is enough to make one gasp in disbelief, but nowadays there is practically universal agreement that the financial sector must be more or less rigorously reined in and regulated. (Hedge fund managers and some other holdouts demur, of course.) Yet mere weeks ago, “government regulation” was still a phrase to be avoided like the plague, ranking right up there with “liberal” in the vocabulary of political obloquy.

It’s hard not to be reminded of just how quickly the political chemistry of the country changed at the end of the 1920s. The presiding figure who had loomed over that decade was Secretary of the Treasury Andrew Mellon — then considered the greatest Treasury secretary since Hamilton. In 1929, his insane faith in the free market led him to suggest to President Herbert Hoover that the way out of the Depression was to do nothing, except “liquidate stocks, liquidate labor, liquidate the farmer, liquidate real estate.” That thought earned him the enmity of a once admiring country. So, too, laissez-faire has suddenly become much too French for Americans who, but moments ago, treated it like the Holy Grail. We are all regulators today.

Of course, the devil, as every politician on television now makes sure to say, will lie in the details of just what re-regulation consists of. If all it involves is transparency, that won’t be nearly enough. After all, that is precisely what Sarbanes-Oxley promised when it required financial institutions to make full disclosure of their activities. When it comes to circumventing the rules of information sharing so as to leave the insiders in the know and the rest of us out in the cold, where there’s a will, there will always be a way. The new regulatory regime must have powers that extend beyond umpiring. New rules need to be invented whose purpose is as much to assure economic recovery and equity as it is to police the borders of illegality.

Indeed, popular anger fueling the regulatory crusade now seems to be coupled with a deep-running fear of a coming depression and an urge to reverse course. This, too, is symptomatic of a shift in the axis of political debate, in the zeitgeist, if you will.

The meltdown of the financial system has called into question American economic behavior over the last generation. Wall Street has come to stand for a paper economy that produces nothing useful, nothing tangible the way it once did. It has frittered away resources on embarrassingly grotesque forms of conspicuous consumption and patently non-productive forms of investment. It has left the real economy underdeveloped, its infrastructure rotting away in plain sight, its wealth fractured by unprecedented inequalities, dependent on sweated labor, and its industries, across a broad spectrum, technologically second-rate. It has left the country lost in a sea of debt and headed for an abyss of unemployment, bankruptcy, and evictions. Somehow regulation — although not all by itself — must address this, or so, for the first time in a long while, large numbers of Americans hope and desire.

People are now looking to the government — that ogre of the dying old order — as the only power resourceful and strong enough to direct the flow of capital where it’s needed rather than where the discredited overlords of the financial system think may be most profitable. Conservatives, especially those who rightly balk at the mega-bailout now in the works as unfair to the American taxpayer, decry what they call financial socialism. But what then?

The Meaning of Retribution

As it did in 1929, the free market has failed beyond tolerance. Overwhelming popular sentiment (which each new poll registers with added vehemence) may, sooner or later, bring not only a full recognition of just how wrong-headed the country has been for how long, but how much in need it is of fresh institutions. New forms of public authority, closely overseen by the mechanisms of democracy rather than turned over to some autocrat on leave from his day job as an investment banker, might have a chance of doing what was once unthinkable: de-sanctifying private property and compelling it to perform in the general interest when its private misuse has placed us all in peril. The New Deal ventured in that direction. We need to venture further.

Here’s a first principle: Refuse to reward those institutions that have done us no service. If that entails their liquidation (to borrow a word from Andrew Mellon), so be it. The world won’t end, only the world as they have known it.

Let’s use what’s left of their grossly inflated assets to re-start the engines of real economic development. Compel investment in the re-industrialization of the country along lines that reward labor not parasitism, end the reign of the sweatshop, rescue the country from environmental suicide, revise the division of wealth and income so we can all live free of the indecencies of lavish piggery, and insist that social responsibility takes precedence over the bottom line.

Many will seek retribution as well, just as Americans used to do in the decades before the Great Depression. How could they not? That’s what happens when simple rage turns into moral outrage, when people are finally called to account for the damage they’ve done. The emotion fuels a chemical reaction even now at work in our cultural innards. It may prove the catalyst for an intellectual and emotional explosion that someday will add up to a genuine break with the past. It did so back in 1929.

However justifiable, cutting CEOs loose from the life-support systems they’ve used to drain corporate treasuries for decades is small potatoes. Do it, but let’s hope the instinct for retribution will be turned to better purposes — to, in fact, reintroducing into our political life and our economic behavior an ethos of social solidarity. Let’s see where that might take us. We could do much worse.