Sean Wilentz: A Tale of Two Fine Roosevelts





[Sean Wilentz, a Princeton historian and the author, most recently, of “The Age of Reagan: A History, 19742008,” is a NEWSWEEK contributing editor.]

The Age of Reagan is over. Obama and McCain should recall the cousins who took on Wall Street panics and won.

The traumatic financial crisis has emphatically ended the political age of Ronald Reagan. For more than 30 years, conservative ideas about small government and the unfettered free markets set the tone of American politics and government. Government, Reagan said, had become the problem and not the solution. His conservative Republican successors took the dogma of deregulation and regressive tax cuts to its logical conclusion, in line with former House majority leader Dick Armey's axiom: "The market is rational and the government is dumb." But today, amid what Republicans and Democrats agree is the worst financial catastrophe since the Great Depression, government has become the solution again—the only conceivable one—and it seems that it will remain so for a long time to come. In the short term, the turnabout has boosted the Democrats and their presidential candidate, Barack Obama. Even Obama's self-described Reaganite Republican opponent, John McCain, has proposed massive government action to prop up ordinary homeowners. Instead of Ronald Reagan, the times seem to call for a new Roosevelt. And although most commentators apparently mean Franklin D. Roosevelt, we should remember Theodore Roosevelt as well—John McCain's other hero, who successfully faced his own showdown with financial mayhem late in his presidency.

In 1907, when a group of New York tycoons failed to corner the copper market, Wall Street securities markets faltered and, by the end of October, reached the brink of collapse. The trustbusting TR had long antagonized the chief captains of American business and finance. Yet to stave off a complete collapse, Roosevelt was willing to cooperate with New York bankers, led by the redoubtable J. P. Morgan, and supply their failing institutions with infusions of federal aid. By year's end, the government had deposited more than $70 million (roughly $28 billion in 2008 dollars) in customs receipts in New York banks and sold to the banks, on credit, more than $150 million (about $61 billion today) in Treasury certificates and low-interest bonds, which they used as collateral to keep themselves afloat. By January 1908, the downward spiral had been reversed, and the panic was over.

The panic's political repercussions, however, had barely begun. Even as Roosevelt came to the bankers' rescue, pro-business reactionaries blamed the entire crisis on his hostility to the trusts. Critics accused him of trying to destroy enterprise and prosperity, and charged that he had disastrously undermined national confidence. Roosevelt, for his part, never doubted that profit-hungry speculators had caused the emergency. He proclaimed that the panic proved how "speculation, corruption and fraud," camouflaged by pieties about economic freedom, individualism and justice, were enriching Wall Street crooks at the expense of the commonwealth.

Roosevelt was as good as his word. In his annual message to Congress delivered in December 1907, he called for the adoption of inheritance and personal income taxes, the national regulation of railroad securities and the fixing of railroad rates, among a long list of other reforms. Congress balked, and TR sent another message, resubmitting his original proposals, adding a new one for federal regulation of stock-market speculation. Equating gambling on the stock market with gambling with cards, Roosevelt declared that the time had come "to make the class of great property holders realize that property has its duties no less than its rights."

The chief reform to arise from the panic, the creation of the Federal Reserve System, was not enacted until 1913 under President Woodrow Wilson. But after Wilson's political and physical collapse in 1920 came 12 years of Republican rule, during which some of Roosevelt's proposals, notably on regulation of the stock market, continued to languish.

TR's cousin Franklin won the Democratic nomination amid economic conditions far more fearsome than any previously known. The slump that had begun with the stock-market crash in 1929 had metastasized into full-scale collapse. The banking system was virtually moribund. Yet FDR did not inspire universal confidence as a new TR...


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