With all the talk of a new “Great Depression,” Herbert Hoover has enjoyed an ignominious revival. On the day when Lehman Brothers winked out of existence and the simmering financial crisis boiled over, John McCain infamously pronounced that the “fundamentals of the economy are strong,” a phrase that uncomfortably echoed Hoover’s 1929 pronouncement that “the fundamental business of the country…is on a sound and prosperous basis.”
Hoover’s inaction in the face of the mounting crisis has made him an enduring symbol of economic mismanagement, but as bad he was, his neglect was nowhere near that of his secretary of the treasury, Andrew Mellon. Faced with a financial crisis even greater in scale than our current troubles, the multi-billionaire robber baron said, more or less, “Bring it on”: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate!” Mellon railed, “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”
In welcoming the widespread immiseration of the populace, Mellon was simply giving voice to his (very) narrow class interest: depression brought with it a sharp deflation that would increase the wealth of the holders of great stores of capital like himself, and provide ample opportunities to purchase assets at steeply discounted prices. Though he was putatively the treasury secretary of the entire country, his views reflected the narrow interests of his fellow Wall Street tycoons.
Mellon’s failure is a startling reminder of just how important the secretary of the treasury can be. Certainly that has never been the case more than it is now: The next treasury secretary will oversee hundreds of billions of dollars of bailout money, and will have statutory authority to spend it pretty much any way he or she sees fit. So far, the best we can say about Hank Paulson is that he’s not quite as bad as Andrew Mellon. Like Mellon, Paulson cut his teeth on Wall Street, overseeing Goldman Sachs while the speculative bubble of credit inflated. When the bubble burst, Paulson’s initial bailout proposal included a provision explicitly barring oversight. And throughout the crisis, Paulson has failed to put in obvious safeguards, like banning banks from issuing dividends or disclosing what deals Treasury has struck (and with whom) to administer the handout.
Starting with the very first secretary of the treasury, Alexander Hamilton, the office has, traditionally been held by a denizen of Wall Street. But at this moment, whatever the benefits of hands-on experience with finance brings, it comes at high cost: a tendency to believe that what’s best for Wall Street is necessarily best for the country as a whole.