Congress has just tentatively agreed to 'bailout' Wall Street from years of reckless lending with a $700 billion package..
According to the Federal Reserve Chairman and the Secretary of the Treasury, a failure to immediately shore up the finances of decapitalized banks will inevitably lead to either a financial panic or possibly a depression.
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As a result of widespread fear of an economic meltdown, the House and Senate appear to have endorsed the proposal of transferring nearly a trillion dollars from US taxpayers to several faltering financial houses in New York. The logical question floating through conversations across America, 'Why should we bailout the very people who pilfered and nearly destroyed the economy?', is a legitimate one. Due to the climate of fear, Congress seems to have hastily accepted the bailout proposal without serious consideration of a viable and more equitable alternative. In order to produce a fairer solution to the financial morass, a fine place to begin would be to review the creative genius of a former Treasury Secretary.
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William Gibbs McAdoo (1863-1941) was born in the middle of the Civil War in the Confederate state of Georgia. After finishing high school, he graduated from the University of Tennessee and subsequently became a successful lawyer in Chattanooga, Tennessee. A happy marriage to Sarah Fleming, which produced four daughters and three sons, balanced his professional life.
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The year 1912 proved fateful for both American history and William on a personal level. His wife of 27 years died, and he left a lucrative business career to join the presidential campaign of New Jersey Governor Woodrow Wilson. When Wilson defeated the incumbent William Howard Taft, the renegade Bull Moose Party candidate Theodore Roosevelt and the fiery socialist Eugene Debs for election, he named McAdoo Secretary of the Treasury. By far, it was the best cabinet choice Wilson made.
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In two years, McAdoo moulded the newly created Federal Reserve System into the nation's most powerful and authoritative lending institution, and his productive achievements were once again rewarded with romantic love in a second marriage to Eleanor Wilson - the president's daughter.
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The Genius of William Gibbs McAdoo
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By the autumn of 1914, Europe had entered into a cataclysmic tragedy. In order to gear up for war against Germany, France and Britain were planning to divest their holdings from America and convert the liquid assets into gold to fund their military campaigns. If the Wilson administration had allowed London and Paris to sell off their American securities, the United States would have unquestionably faced a catastrophic deterioration of its economy. As a debtor nation, the US could ill afford to lose two of its most significant financial investors.
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What to do? McAdoo had two relatively simple yet brilliant ideas. First, he ordered the American stock exchange shut down for four months to prevent the allies from liquidating their holdings. Consequently, France and Britain essentially had to finance the war on an American promissory note.
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Secondly and perhaps more importantly, McAdoo advanced four US bond issues between April 1917 and September 1918 to pay for American and Allied cause. These securities, popularly known as 'Liberty Bonds', were issued in various denominations and offered a return of the principal with interest between 3.5 and 4.5%. Charlie Chaplin, Al Jolson and Douglas Fairbanks were among several silver screen stars to promote the bonds with the slogan 'If you can't enlist, invest. Buy a liberty bond!' Its patriotic appeal was staggeringly successful. At the end of the $30 billion conflict (US cost), Americans had financed more than half the amount ($17 billion) with Liberty Bonds. Everybody won. The American people made approximately 4% on their investment, the US military operated with sound financial backing and Europe retained its lucrative American securities as well.
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The current 'Bailout' package, whereby US taxpayers simply cover the egregious losses from unscrupulous Wall Street financiers, has not been voted on yet, and Americans ought to consider the merits of loaning Wall Street the money to recover rather than writing a blank check without expectation of anything in return. 'Bailout Bonds', issued along the lines of Liberty Bonds, would not only ameliorate the prospect of a financial crisis but would also force Wall Street to be strictly accountable in using the funds - since every dime would be paid back with interest to the US government. The government, in turn, would then pay off bailout bondholders. Once again, everyone wins.
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Should Wall Street return to its predatory ways again in the future and compromise the economic security of the United States for its own collective cupidity, the Secretary of the Treasury will be justified in taking a cue from William Gibbs McAdoo and closing down the stock exchange - perhaps once and for all.
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J Roquen