1837 Redux

I believe that there are more instances of the abridgement of the freedom of the people by the gradual and silent encroachment of those in power, than by sudden usurpation.  (James Madison, speech, Virginia Convention, 1788)

I believe that banking institutions are more dangerous to our liberties than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. (Thomas Jefferson, letter to John Taylor, 1816)

It has been urged as an argument in favor of rechartering the present bank that the calling in its loans will produce great embarrassment and distress.  The time allowed to close its concerns is ample, and if it has been well managed its pressure will be light, and heavy only in case its management has been bad.  If, therefore, it shall produce distress, the fault will be its own, and it would furnish a reason against renewing a power which has been so obviously abused.  But will there ever be a time when this reason wil be less powerful?  To acknowledge its force is to admit that the bank ought to be perpetual, and as a consequence the present stockholders and those inheriting their rights as successors be established a privileged order, clothed both with great political power and enjoying immense pecuniary advantages from their connection with the Government.  (Andrew Jackson, Veto Message to Congress on the rechartering of the Second Bank of the United States, Paragraph 9, 1832)

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes.  Distinctions in society will always exist under every just government.  Equality of talents, of education, or of wealth can not be produced by human institutions.  In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privilieges, to make the rich richer and the potent more powerful, the humble members of society – the famers, mechanics, and laborers – who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.  There are no necessary evils in government.  Its evils exist only in its abuses.  If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing.  In the act before me there seems to be a wide and unnecessary departure from these just principles. (Andrew Jackson, Veto Message to Congress on the rechartering of the Second Bank of the United States, Paragraph 44, 1832)

Whoever controls the volume of money in our country is absolute master of all industry and commerce…when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate. (James A, Garfield, President)

I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation.  In large multi-national companies, the jobs of tens of thousands of employees can be at stake.  And in some cases, the health of an industry or the markets are a real factor.  Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement. (Lanny Breuer, Assistant United States Attorney General, speech to the New York Bar Association, 9/13/12)

I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.  And I think that is a function of the fact that some of the these institutions have become too large. (Eric Holder, United States Attorney General, Senate Testimony, 3/6/13)

The crucial point to be taken from the aforementioned quotes is that there’s been a long-standing distrust of, and tension between, our government and those within the financial sector.  The Founding Fathers wished a government that avoided the pitfalls of their European forebears; hand-in-hand with the despotic nature of uncontrolled royalty was the power and influence gained by the financiers who did business with the royalty.  But a nation needs a cohesive financial sector and it’s there that the ongoing tension occurs as the human tendency to garner wealth and power comes into the nation’s need to rein in such impulses. 

This tension reached a crisis point in Jackson’s administration with the rechartering of the Second Bank of the United States, run by Nicholas Biddle.  There was no functioning central bank and it was Biddle’s bank which filled the gap by providing credit to smaller banks, based upon the strength of the deposits placed in his bank by the United States government.  But the first real instance of private ambition versus national interest occurred when Biddle began to pressure Jackson for renewal of his congressional charter by withdrawing credit from the smaller banks, causing some to collapse with the resultant loss of the depositors’ funds.  Jackson met that action by weakening Biddle by unilaterally withdrawing the government’s deposits so that Biddle was unable to extend credit to anybody – insuring a banking system collapse and the Depression of 1837.  Jackson knew the result was fore-ordained, yet he did it anyway because to fail would be to surrender the government’s power to one individual, who would have final say on anything to his interest to the exclusion of the greater good. 

American society lives in the moment, a wonderful quality if it means that you forget the slights and feuds that propel much of the rest of the world but problematic since we forget the lessons of our history.  Financial issues continued to abound in any number of ways – bi-metallism, gold standard, periodic booms-and-busts – but the issue of Jackson’s day has been quiet until a rebirth with the financial deregulation in the 1990s.  This was the moment when Reagan’s mantra government is the problem, not the solution went awry and we forgot that government also serves to regulate the worser angels of our nature.  We again went through booms but these were contained by an abundantly easy monetary policy, the equivalent of trying to cure cancer with copious amounts of morphine.  The unrestrained financial sector behaved like something out of A Clockwork Orange, mugging passersby and bragging about it until the crisis of 2008 when they found themselves in a web that would require sovereign intervention, courtesy of the US Congress and the Federal Reserve.  But the best response from a new president would have been a re-institution of financial regulation and a crackdown upon the behaviors that drove us to the crisis brink; instead, trillions of dollars were spent to prop up the financial sector with no curb on the behaviors.  We’ve now found that the large banks – Too Big to Fail – conspired to fix LIBOR while JPM not only lied to their own risk management staff, but lied up the line to the point that Jamie Dimon lied in testimony to the Senate Select Committee.  Goldman routinely does the opposite of what it advises its own client base and money flows throught the proprietary trading desks to float the stock indices divorced from reality.  And the levels of derivative products – which ratchets up the damage levels should this happen again – have risen significantly.

In his speech and interview, former AG Lanny Breuer promoted the notion that while there have been no indictments against any of the entities, there have been indictments of certain individuals; a recurrent thread of commentary is that it’s sooooo hard to get a criminal indictment, that the level of proof required makes it almost impossible whereas the civil route simply requires a level beyond a reasonable doubt.  He further acknowledged – and this is what caused him to leave – that he views the prospect of criminal prosecturion through the lens of collateral damage to the economy; about six weeks later, his boss, Attorney General Eric Holder, also acknowledged that he’s concerned about prosecution of the TBTF entities for fear of collateral damage to the economy. 

And here’s where we get back to Jackson and the Second Bank of the United States.  It’s one thing to pursue individuals, but what if the collective culture of the corporate entities is so pervasively corrupt that the present approach is akin to swatting at individual flies when you’re being swarmed?  These acknowledgements by our top Justice officials reveal that the TBTF management actively operates under the cold war doctrine of Mutually Assured Destruction, in which outrageous behavior occurs with the understanding that punishment will be muted at best for fear that some plug will be pulled and the entire structure pulled down.  We’ve burdened ourselves with trillions in additional debt and begun a dollar debauch that will ultimately result in a global currency shift; average investors are lured back into a market in which they stand a significantly higher risk of loss with biased information provided by the institutions.  Jackson understood that there was going to be tremendous damage from his stance, but that the rule of law and the common good required that action be taken or the Constitution and nation would be subverted and stunted.  Control of the nation’s interests would be effectively turned over to one person and the history and strides of the past six decades would be nullified.  What would have happened to our nation’s history had power ultimately rested with the monied Nicholas Biddle?  Would there have been a Civil War?  Would there have been an Emancipation Proclamation?

The point is this.  If there’s going to be any significant improvement to the real economy, if there’s going to be a meaningful return to the rule of law, then we have to accept the prospect of real economic pain.  But there continues to be promise to our country if we – our legislators and regulators included – are willing to call the bluff.  The TBTF management will otherwise continue to operate in a realm that’s unchecked with the expectation that all losses and illegalities will be covered until the nation is effectively ruined.  A failure to do so will result in a certain slow death of hope for our youngsters, trapping them in the same semi-employed, unsupportable and truly hopeless state in which their European peers find themselves.  Jackson understood that he owed a responsiblity to future generations of Americans.  It’s time that our leaders recognize the same.


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