BROKEN BARGAIN

A history of American financial crises, “boom-and-bust cycles of panics, failures, and the loss of individuals’ savings.”

Following the financial meltdown of 2008, writes former business journalist Day (Business Administration/Johns Hopkins Business School; S&L Hell: The People and the Politics Behind the $1 Trillion Savings and Loan Scandal, 1993), Queen Elizabeth II asked faculty at the London School of Economics why no one had noticed. It was, they said, “principally a failure of the collective imagination of many bright people.” As the author clearly shows, national and international economic systems involve many bright people, but the experts often fail—and, “given the political landscape, they will again.” Day ably documents a succession of crises that ought to have imparted essential lessons but that instead fueled further crises—e.g., tariffs or Andrew Jackson’s undoing of Alexander Hamilton’s national bank system, Jackson being the predecessor Donald Trump seems most to admire. Much of the author’s story concerns efforts to separate banking and investment, which Franklin Roosevelt characterized as “speculation with other people’s money”; every time the two are separated, of course, politicians join them together anew only to usher in another crisis. In several respects, Day shows, the 2008 crisis can be traced to 1929 and even farther back, with banks gambling and losing and government, after 1929, bailing them out as part of a “social contract…in which banks agreed to stricter oversight and tighter rules in exchange for a government safety net in times of crisis.” The collapse of the savings and loan industry in the 1980s, the Enron debacle, Charlie Keating’s junk bonds, the Great Recession: All, by Day’s well-defended account, are of a piece, showing once again, as if proof were needed, that history teaches only that humans do not learn from history.

A fluent if dispiriting study of an economic system that forgives those at the top so long as those at the bottom remain willing to foot the bill.