There was a time when Americans made things.
People from Central Jersey still can view the massive slogan afixed to the Trenton bridge crossing the Delaware River on Business Route 1: "Trenton Makes The World Takes."
Installed during the 1930s, the sign could be said to have been the motto of every small to midsize city in the country for much of the last century - not only New Jersey cities like New Brunswick and Phillipsburg, but urban manufacturing centers like Youngstown, Ohio, Gary, Ind., and Flint, Mich.
But that was during another time. Over the last three to four decades, as the writer Kevin Phillips pointed out to Bill Moyers on "Bill Moyers' Journal" on Friday, the nation's manufacturing base, which had driven the economy for nearly a century, has atrophied. In its place, he says, you have a financial sector that has "hijacked the economy."
"This has been going on since the beginning of the 1980s," he said. "Finance has been preferred as the sector that got government support. Manufacturing slides, nobody helps. Finance has a problem, Federal Reserve to the rescue. Treasury to the rescue."
This hijacking explains the current economic crisis. The meltdown on Wall Street and resulting credit crunch grew out of the Ponzi scheme that the financial industry has been working over the past three decades, an elaborate debt pyramid built on questionable mortgages tied to inflated housing values, mortgages that were then sold to generate revenue over and over again. Basically, the array of mortgage-backed securities, collateralized debt obligations, credit default swaps and other purely financial instruments were designed to create money out of thin air.
And that's what they did, or seemed to do. As we know now, however, those financial instruments were barely worth the paper they were printed on. The Wall Street con artists - the people who erected the pyramids - got away with it because deregulation became the reigning dogma in Washington among leaders of both parties.
The Glass-Steagall act, New Deal legislation that created firewalls preventing commercial banks from playing the stock and bond markets, was repealed in 1999 after more than a decade of lobbying by the financial sector. The legislation repealing it was sponsored by Republicans, but backed by both parties in both houses of Congress and then signed into law by President Bill Clinton, a Democrat.
The dismantling of these firewalls - and the oversight that came with them - resulted in a feeding frenzy that led to an explosion of debt.
Eugene Robinson, in The Washington Post on Tuesday, blamed the crisis not only on "the irresponsibility of the financial wizards who built on those shaky mortgages a towering edifice of irrational faith," but on a negligent federal government that should have "demanded that Wall Street prove that all, or even most, of this purported money was real."
They didn't, of course, and now the people who should have been minding the store are saying they have the solution to the current problem.
The bailout plan proposed by Treasury Secretary Henry M. Paulson Jr. must be viewed within this context. Secretary Paulson, speaking at a Senate hearing Tuesday, said the bailout would "stabilize our financial system" and "avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy."
This may be true, but tossing money at failing companies that sucked money out of the economy without imposing significant regulation on the financial sector seems a risky approach - especially when each American would be on the hook for about $2,300.
That appears to be why Secretary Paulson and Federal Reserve Chairman Ben S. Bernanke received such a cool reception from members of the Senate Banking Committee. Senators from both parties expressed concern that the secretary was proposing to hand over $700 billion without strings to the financiers who drove the bus off the cliff - especially when many of the CEOs of the failing banks and investment firms walked away with juicy compensation packages.
Sen. Jim Bunning, a Kentucky Republican, called the plan "financial socialism" because it would "take Wall Street's pain and spread it to the taxpayers," while Sen. Chris Dodd, D-Conn., denounced the idea that "the authors of this calamity" gained financially but would get off scot-free. (The New York Times)
We should call this what it is - the socialism of fools.
"The ugly thing about this is this is privatizing gains and socializing losses," Gretchen Morgenson, a business writer for The New York Times, told Bill Moyers on Friday. "So when things are going well, the managements make out, the shareholders make out, the counterparties are fine. All the private sector people do well. But when something goes wrong, when decisions are made that turn out to be bad decisions, the U.S. taxpayer has to take on the problem."
And if we must take it on - and Secretary Paulson and Chairman Bernanke are convinced we must - then Congress must attach a bushel of strings to the money. Any bailout package has to be structured to protect taxpayers and homeowners and not reward companies and CEOs who made bad bets.
Without the strings, we have no reason to believe the people who run the financial sector won't build new pyramids.
This column originally appeared on the South Brunswick Post (Dayton, NJ).