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Devin Leonard: Government as Wall Street's Enabler

This is very much in the spirit of Mr. Ritholtz’s book, “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy” (Wiley), in which he argues that the American financial system has been twisted beyond recognition by cynical bankers and their Washington enablers, who champion the free market in good times but cry out for government rescue when times are hard...

... Mr. Ritholtz notes that the government wasn’t always so willing to provide a safety net to banks. He contrasts efforts of George W. Bush last fall to those of Franklin D. Roosevelt in the Great Depression. Roosevelt, he says, came to the rescue of ordinary people, financing public works programs that created jobs and making mortgage loans to homeowners facing foreclosure.

It all started to change in 1971, Mr. Ritholtz writes, when the government dished out $250 million in loan guarantees to Lockheed, which was ailing because it had submitted low bids to win government military contacts. That bailout paved the way for the $1.5 billion rescue of Chrysler in 1980.

He writes that this rescue left the carmaker with the same management and did nothing to change onerous union contracts. If the government had allowed Chrysler to fail, he argues, the United Automobile Workers might have been more eager to make health care and pension concessions that would have made the industry more competitive.

The author argues that someone might have scooped up Chrysler’s remains and made better cars, spurring rivals to do the same.

Today, instead, foreign car manufacturers dominate the American market. The author writes that the U.A.W.’s membership has fallen by more than two-thirds since its peak of 1.5 million in 1979. And Chrysler recently declared bankruptcy along with G.M.

“If that’s your idea of a successful bailout,” Mr. Ritholtz writes, referring to the earlier attempt to save Chrysler, “I’d hate to see what your idea of a losing one is like.” ...
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