Bailout Nation (47 page)

J
oe Moglia, chairman of TD Ameritrade, has an idea that is less about
what
the president should do than
how
he—along with Tim Geithner and Ben Bernanke—should approach their jobs. Joe's big complaint has to do with communication.

This is the first time we've had to handle this situation, and it's incredibly complex and difficult. While it takes great minds to devise a solution, when it's time to explain it to the typical family, it needs to be kept reasonably simple and clear. If a football coach has a brilliant game plan on the blackboard but cannot simplify it so it is crystal clear to the players, that plan will not get executed properly. The probability for failure increases.

Our president—as articulate as he is—is allowing his team to sound like philosophers and researchers when they explain what is going on in the marketplace and what the business plan is to fix it. He needs to speak to this country in a way people can understand. It will foster confidence that the fate of the nation is in good hands.

Vince Farrell of the Soleil Group offers this related suggestion: “Monthly (or quarterly) White House dinners. Take a page from New York City Mayor Michael Bloomberg and have regular dinners with people from different industries and walks of life. Include finance types at every dinner, along with academics and social workers, industrialists and health care workers. Everyone has to sing for their supper in two minutes or less with the most important issue on their minds.”

G
ood suggestions, all. I hope someone in the White House pays attention.

1
Daniel Gross,
Pop! Why Bubbles Are Great for the Economy
(New York: Harper-Collins, 2007).

1
Casimir Frank Gierut,
Taxpayers' Message to Congress: Repeal the Federal Reserve Banks; Pandora's Box of Criminal Acts
(Bunker Hill, IL: National Committee to Repeal the Federal Reserve Act, 1983), 31. (The Federal Reserve Act was passed in 1913 on a Sunday two days before Christmas when most of Congress was on vacation. Wilson's comments regarding the bill he signed into law were made years later.)

2
Steve Matthews, “The Improviser,”
Bloomberg Markets
, June 2008,
www.bloomberg.com/news/marketsmag/mm_0608_story2.html
.

3
The Economic Club of New York, 395th Meeting, New York City, April 8, 2008,
http://econclubny.org/files/Transcript _Volcker_April _2008.pdf.

4
“Jefferson's Opinion on the Constitutionality of a National Bank,” 1791, The Avalon Project at Yale Law School,
www.yale.edu/lawweb/avalon/amerdoc/bank-tj.htm
.

5
Virtual Tour of Historic Philadelphia, “Second Bank of the United States/ Portrait Gallery: Biddle vs. Jackson,”
www.ushistory.org/tour/tour _2bank htm

6
Roger T. Johnson, “Historical Beginnings
. . .
the Federal Reserve,” Federal Reserve Bank of Boston, December 1999,
www.bos.frb.org/about/pubs/begin.pdf
.

7
Stephen Mihm,
A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States
(Cambridge, MA: Harvard University Press, 2007).

8
Ibid., 6.

9
Johnson, “Historical Beginnings.”

10
Robert F. Bruner and Sean D. Carr,
The Panic of 1907: Lessons Learned from the Market's Perfect Storm
(Hoboken, NJ: John Wiley & Sons, 2007), 7.

11
G. Edward Griffin,
The Creature from Jekyll Island
, 4th ed. (Westlake Village, CA: American Media, 2002).

1
Robert J. Shiller, “A Government Hand in the Economy Is as Old as the Republic,”
Washington Post
, September 28, 2008, B01,
www.washingtonpost.com/wp-dyn/content/article/2008/09/26/AR2008092602838. html

2
Daniel Gross,
Pop! Why Bubbles Are Great for the Economy
(New York: Harper-Collins, 2007), 29. (Morse was a reluctant entrepreneur who believed the telegraph was too important a public utility to be left to the private sector. He “repeatedly begged Congress to take control of the telegraph, and make the extension of lines a national project.”)

3
Jonathan Alter,
The Defining Moment: FDR's Hundred Days and the Triumph of Hope
(New York: Simon & Schuster, 2006), 341.

4
Harriss, C. L.,
History and Policies of the Home Owner's Loan Corporation
(Detroit: National Bureau of Economic Research, 1951),
www.nber.org/books/harr51-1
.

5
“Profitable HOLC,”
Time
, April 22, 1946,
www.time.com/time/magazine/article/0,9171,792832,00.html
.

6
Alex J. Pollock, “A 1930s Loan Rescue Lesson,”
Washington Post
, March 14, 2008, A17,
www.washingtonpost.com/wp-dyn/content/article/2008/03/13/AR2008031303174.html
.

7
Harriss,
History and Policies
.

8
Ibid.

9
Alan S. Blinder, “From the New Deal, a Way Out of a Mess,”
New York Times
, February 24, 2008,
www.nytimes.com/2008/02/24/business/24view.html
.

10
Harriss,
History and Policies
.

11
James Butkiewicz, “Reconstruction Finance Corporation,” in
EH.Net Encyclopedia
, ed. Robert Whaples, July 20, 2002,
http://eh.net/encyclopedia/article/butkiewicz.finance.corp.reconstruction
.

12
Wigmore, Barrie A., “The Crash and Its Aftermath: A History of Securities Markets in the United States, 1929-1933,” Contributions in Economics and Economic History, no. 58 (Westport, CT: Greenwood Publishing Group, 1985), 540.

1
The company placed the blame for these losses and its subsequent difficulties on military contracts arranged under the Total Package Procurement (TPP) procedure instituted by former Defense Secretary Robert McNamara, a system “designed to end overrun claims by setting a strict ceiling on the final cost of any project.”

2
The TPP was a fixed contract purchasing program instituted by the Defense Department where defense contractors would bid for military programs based on their expected development and production costs and the government would pay only up to the contract ceiling. The losses involved in any contract would thus be shouldered by the contractor with the government liable only to the ceiling price.

3
Nick Barisheff, “August 15, 1971: Inflation Unleashed,” Financial Sense University, May 11, 2006,
www.financialsense.com/fsu/editorials/bms/2006/0511.html
.

4
“The Biggest Bankruptcy Ever,”
Time
, July 6, 1970,
www.time.com/time/magazine/article/0,9171,878372,00.html
.

5
“The Penn Central Reorganization Revisited—Again,” News and Insights, DLA Piper, January 14, 2008,
www.dlapiper.com/penn _central _reorganization/

6
“Chrysler's Crisis Bailout,”
Time
, August 20, 1979,
www.time.com/time/magazine/article/0,9171,947356,00.html
.

7
Jimmy Carter, “Chrysler Corporation Loan Guarantee Act of 1979: Remarks on Signing H.R. 5860 into Law,” January 7, 1980,
www.presidency.ucsb.edu/ws/index.php?pid=32978
.

1
Nell Henderson, “Backstopping the Economy Too Well?”
Washington Post
, June 30, 2005, D01,
www.washingtonpost.com/wp-dyn/content/article/2005/06/29/AR2005062902841.html
.

2
Robert T. Parry, “The October '87 Crash Ten Years Later,”
Federal Reserve Bank San Francisco Economic Letter
97-32, October 31, 1997,
www.frbsf.org/econrsrch/wklyltr/e19-32.html
.

3
Brett D. Fromson, “Plunge Protection Team,”
Washington Post
, February 23, 1997, H01,
www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
.

4
Zachary Roth, “Report Shows White House Engineered U.S. Attorney Firings,” October 1, 2008,
http://tpmmuckraker.talkingpointsmemo.com/2008/10/report_shows_white_house_engineered.php
.

5
Lynn Thomasson and Eric Martin Bloomberg, “S&P 500 Index Drop Leaves 64 Industries with Losses,” November 21, 2008,
www.bloomberg.com/apps/news?pid=20601213&sid=am1FNznC.tNE&
.

6
Carl E. Walsh, “What Caused the 1990-1991 Recession?”
Economic Review
, no. 2, Federal Reserve Bank of San Francisco, 1993,
www.frbsf.org/publications/economics/review/1993/93-2 _34-48.pdf

7
Louis Uchitelle, “Greenspan's Authority Curtailed on Interest Rates, Officials Say,”
New York Times
, April 8, 1991,
http://query.nytimes.com/gst/fullpage.html?res=9D0CE0D8113DF93BA35757C0A967958260

8
Paul R. Krugman, “Did the Federal Reserve Cause the Recession?”
U.S. News & World Report
110, no. 12, April 1, 1991, 54,
www.pkarchive.org/economy/FedRecession1991.html
.

9
Federal Reserve Bank of New York, “Historical Changes of the Target Federal Funds and Discount Rates, 1971 to Present,”
www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
.

1
Alan Greenspan, Remarks at the Annual Dinner and Francis Boyer Lecture of the American Enterprise Institute for Public Policy Research, Washington, D.C., December 5, 1996, aka the “Irrational Exuberance Speech”;
www.federalreserve.gov/boarddocs/speeches/1996/19961205.html
.

2
Ibid.

3
Daniel Gross, “Wall Street Throws a Tantrum,”
Newsweek
, February 11, 2008,
www.newsweek.com/id/107571
; Gillian Tett, “Markets Throw One Tantrum after Another,”
Financial Times
, October 10, 2008,
http://us.ft.com/ftgateway/superpage.ft?news _id=fto101020081422295531;
“Carry On Screaming,”
Economist
, October 9, 2008,
www.economist.com/finance/displaystory.cfm?story_id=12381895
.

4
Alan Greenspan, “Risk and Uncertainty in Monetary Policy,” Remarks at the Meetings of the American Economic Association, San Diego, California, January 3, 2004,
www.federalreserve.gov/boarddocs/speeches/2004/20040103/default.htm
.

5
Charles Mackay,
Extraordinary Popular Delusions and the Madness of Crowds
, published in 1841; Edwin Lefèvre,
Reminiscences of a Stock Operator
, published in 1922-1923; and John Kenneth Galbraith,
The Great Crash, 1929
, published in 1955, are examples.

6
Federal Reserve Press Release, November 17, 1998,
www.federalreserve.gov/boarddocs/press/general/1998/19981117/
.

7
“The Committee to Save the World: The Inside Story on How the Three Marketeers Have Prevented a Global Economic Meltdown—So Far,”
Time
, February 15, 1999,
www.time.com/time/covers/0,16641,19990215,00.html
.

1
Minutes of the Federal Open Market Committee meeting of August 20, 1996 (transcript).

2
Alan Greenspan, “Question: Is There a New Economy?” remarks at the Haas Annual Business Faculty Research Dialogue, University of California, Berkeley, California, September 4, 1998.

3
The full list of imploded mortgage lenders can be found at The Mortgage Lender Implode-O-Meter,
http://ml-implode.com/index.html#lists
.

1
Floyd Norris, “Dow Conquers 5,000 Mark, Riding Surge of Confidence,”
New York Times
, November 22, 1995,
http://query.nytimes.com/gst/fullpage.html?res=9F07E1DB1339F931A15752C1A963958260

2
Ben S. Bernanke, “Deflation: Making Sure ‘It' Doesn't Happen Here,” remarks before the National Economists Club, Washington, D.C., November 21, 2002,
www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
.

3
Asha Bangalore, “Housing Market—Another Information Tidbit,” Northern Trust Company, May 23, 2005,
www.northerntrust.com/library/econ _research/daily/us/dd052305.pdf

4
Christopher D. Carroll, Misuzu Otsuka, and Jiri Slacalek, “How Large Is the Housing Wealth Effect? A New Approach,” NBER Working Paper W12746, December 2006,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id =949756.