It's A Wonderful Life When Banks Don't Fail

I like reading modern arguments for New Deal programs, and I like it even better when they reference Capra Movies:


From Slate: Why Don't Banks Fail Anymore?

The FDIC was one of those awful, socialistic, anti-capitalistic, doomed-for-failure New Deal projects that has, in fact, contributed enormously to the nation's well-being. "No depositor has lost a single cent of FDIC-insured funds as a result of a failure," as the FDIC proudly notes. And it certainly hasn't inhibited the banking industry from growing.

U.S. banks endured the wretched period between 1980 and 1993, in which 2,500 banks and savings institutions were swept away. FDIC Chief Economist Richard Brown says 1980-93 was "a 100-year flood" for banking. Deregulation in the '70s and '80s led to massive industry expansion without a concomitant rise in risk-management capabilities. And rolling regional problems—woes in the farm belt and New England, manufacturing recessions in the Midwest, real estate speculation on the coasts, and the savings and loan crisis in the Sun Belt—produced gigantic failures.

But the industry learned its lessons. The combination of government oversight, competitive pressures, and improved risk-management has massively reduced the chances of large-scale bank failures.

And for more on the War on Socialism:

The Bushies' War on Franklin Roosevelt:

Why are today's Republicans so hellbent on changing Social Security? Clearly they're not driven by concern over government deficits. After all, they've engineered a taxing and spending regime that intentionally created record deficits. And it can't be that they oppose entitlement programs as a matter of principle. Medicare has an unfunded liability larger than Social Security's, and they just expanded it a couple of years ago with the prescription drug benefit.

Maybe it's because Social Security is an opportunity to refight—and perhaps win—a series of arguments the Republicans lost badly 70 years ago. To put it another way, it's a chance to knock down Franklin Roosevelt, finally. "For the first time in six decades, the Social Security battle is one we can win," Peter Wehner, Bush's director of strategic initiatives, wrote in a memo to supporters in early January.

Dead going on 60 years, FDR still makes self-styled champions of American-stylemcapitalism fulminate, much the same way their counterparts in the 1930s raged against "That Man." Why? The New Deal era reminds national greatness Republicans like Wehner of their party's futility in a time of true national greatness. I also suspect that many Republicans are simply unable to forgive Roosevelt for what may have been his greatest and longest-lasting achievement: saving American capitalism through regulation. And since they can't tear down the Triborough Bridge or the Hoover Dam, these guys act out by going after Social Security.

The theory that new taxes and regulation would inevitably hamper economic growth and destroy America exerted a powerful hold on the minds of the business establishment and the economic right in the 1930s—just as it does today. FDR's proposals seemed to fly in the face of everything these experts knew about how the economy works. In particular, FDR upended the hallowed equation: taxes and regulation equals tyranny and depression.

But a funny thing happened on the road to serfdom. FDR may have gone too far on occasion. He was great, not perfect. And the consumer-based economy that defines our age emerged only after World War II. But the economy did come back to life. Gross domestic product rose 90 percent between 1933 and 1941. Far from turning the United States into a Western version of the Soviet Union or Nazi Germany, the New Deal allowed the United States to function as the world's bulwark against both. The institutions that stood at the heart of the American experiment—representative democracy, the separation of powers, a system of managerial capitalism, liquid capital markets—survived in a world gone mad.

It's difficult to discern the short-term political gain for Republicans to try to dismantle Social Security now. So the payoff must be more psychological or intellectual. Now that they indisputably control all three branches of government, Republicans finally have the opportunity to slay some of the liberal demons that have been bedeviling them for so long.

For 70 years, conservatives have been telling us that the American economy—whether it's in recession or whether it's booming—is laboring under the shackles of the burdensome taxation and misguided regulation placed upon it by FDR and his successors. Somehow, stocks would do better if the SEC were weaker and we'd all be wealthier if seniors weren't guaranteed a minimum income, funded through payroll taxes. But America's economic mastery since 1945 has served as an ongoing and constant refutation of their most dearly held beliefs. It still does today. As George Melloan concedes, "The New Deal basically expanded the reach of government, and things worked out OK." Actually, they worked out great. Some people still can't get over it.

It is strange to be a 21st century New Dealer, but stranger things have happened.