Alexander Hamilton had a toxic asset problem, too

A history professor suggests that Tim Geithner would do well to follow the example set by the nation's first treasury secretary. Easier said than done.

Published March 27, 2009 1:56PM (EDT)

Anti-homeowner bailout tea parties are one way to draw comparisons between today's economic travails and the founding myths and legends of the United States. Friday's Boston Globe features a more historically grounded installment, an Op-Ed piece from Northeastern University history professor William Fowler: "Memo to Geithner: Learn From Hamilton." (Thanks to Mark Thoma for the link.)

As President Obama said last week in defense of his much-criticized treasury secretary, "There has never been a secretary of the Treasury except maybe Alexander Hamilton right after the Revolutionary War who's had to deal with the multiplicity of issues that Secretary Geithner is having to deal with all at the same time." The president knew whereof he spoke.

Fowler writes that when Hamilton took office "the new republic was drowning in a sea of wild financial speculation and crushing debt from the Revolution." Hamilton proposed to stabilize the fledgling republic's economy by having the federal government assume the full face value obligation of its various debts, regardless of their intrinsic "real value." Think of it as kind of toxic asset repricing plan. But Southerners, writes Fowler, "saw this as a power grab by northern bankers and merchants aimed at enhancing the power of the federal government over the states." Or, in other words, the Southerners encapsulated both Paul Krugman's distrust of the banking sector and Republican (supposed) distrust of big government.

Hamilton ended up having dinner with Thomas Jefferson and James Madison and cutting a deal. The South would get the nation's capital located in Virginia, and he would get his vote on the toxic asset management plan.

Neat. But Fowler concludes as follows:

This was one of the great compromises in American history. Like all political compromises it did not fully satisfy all the parties, nor did it reconcile fundamental differences between Hamiltonians and Jeffersonians. Those debates would continue. But at this moment of great crisis three of America's greatest political leaders pushed aside politics and ideology to embrace a national vision. Over dinner that evening in June 1790, Madison, Jefferson, and Hamilton saved the republic. Perhaps it is time for someone in Washington, our compromise capital, to arrange another dinner.

Great idea, but whom is Geithner supposed to sit down with? Whom is he supposed to be compromising with? The administration's left-wing critics, or its right-wing detractors? Or both? House Minority Whip Eric Cantor is now reportedly pitching a banking solution similar to Paul Krugman's calls for bank nationalization but something tells me the two men don't have the same endgame in mind, and wouldn't get along too well over a bottle of port. In some ways, by relying on a public-private market-based solution to the banking crisis, while at the same time proposing greatly expanded regulation of the financial sector, Geithner is already pursuing a compromise between right and left. So who represents the "South" at this proposed dinner table?

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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