Monday, February 21, 2011


In my American Politics class I'm going to discuss the relationship between Wall Street and Washington once we hit the section on Economic Policy. This piece, which I originally posted in longer form when President Obama was "president-elect" Obama, will fit right in with our discussion on economic policy making.

Should President Obama pursue an Andrew Jackson-like showdown with America’s principle money and credit institutions? I think so. Here's why ...

Andrew Jackson's Battle for Democracy
Arthur M. Schlesinger, author of The Age of Jackson, points out that when Andrew Jackson entered the White House (1829-1837) he was appalled by the amount of power that the premier money creating institution in the land, the Bank of the United States, had accumulated. Run by Nicholas Biddle, the Bank of the United States pursued policies that reflected his view, and ran counter to the larger interests of the nation.

Specifically, the (Second) Bank of the United States operated its affairs as if it did not have an obligation to either the U.S. government or its citizens. The Bank’s obligations, according to Biddle, lied with its shareholders.

As a result, the Bank of the United States used its authority to create money (or “issue notes”) to speculate, to challenge the authority of the U.S. government, and to help investors and the “moneyed aristocracy” systematically exploit the “humble members of society.”

With this, the Bank’s power was at once economic, political, and social. This, in part, explains why Andrew Jackson decided to close the Bank of the United States.

Naturally, Nicholas Biddle was upset with Jackson for going after his bank. So he induced an economic panic by deliberately withholding credit (sound familiar?) between 1833 and 1834. Biddle claimed his policies had nothing to do with politics. But history (and common sense) suggests otherwise.

By holding the nation's economy hostage Biddle's actions also proved that Jackson was correct about the banks power, and its capacity to abuse its power.

Financial Institutions, Then and Now
This is important for us to understand today because America's financial institutions are sitting on money and profits provided to them by the U.S. taxpayer, and are holding back on credit precisely when it is needed most. Because we have done little to curtail or regulate their power we are allowing them to act like Biddle’s bank.

In fact, by providing a continuous flow of bailout money with no strings attached, we have created a hydra-headed financial monster that President Obama should fear as much as President Andrew Jackson did during his time: an institution that could both lend and create money at will, while drawing on the resources of the state to make itself bigger and stronger.

Today, financial institutions are drawing on state resources while maintaining previous authorities and protections. In the process, they are leaving the American consumer (and taxpayer) out in the cold. Nicholas Biddle would have been proud.

Worse, our nation's financial institutions – in Nicholas Biddle-like fashion – are now telling the world that they don’t have to maintain credit lines in spite of the fact that the U.S. government and the U.S. taxpayer are the genesis of their life support system. After wrecking the economy, and securing taxpayer backed bailout funds, they must protect their shareholders first.

I say if we are going to hand over trillions of dollars to save the financial system they should be forced to help the government fix the mess they helped create. While I don’t see President Obama recreating the financial system like Jackson did when he closed the Bank of the United States, I still think he should pursue a Jackson-like confrontation.

He should begin by forcing the financial institutions who benefit from the U.S. taxpayer bailout to renegotiate mortgage loan contracts, and/or reduce credit card interest rates.

Just a thought, for President's Day.

- Mark

Addendum: This list of ridiculous things our presidents have done is a light read for President's Day.

Addendum II: For addtional information on Andrew Jackson, which I put together for my Presidency course, click here.

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