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The Harm FDR Did
"Rather than introduce a rules based system, we're introducing a personality based system," Shlaes said, referring to what she called an inappropriate focus on the political players at the center of the mortgage crisis. "Markets don't like that. They want to know what the rules are."
The Bush administration has been criticized for its inconsistent approach to bailing out financial institutions. It rescued American International Group, a huge insurance company, just a week after it allowed Lehman Brothers to collapse. It rescued the mortgage giants Fannie Mae and Freddie Mac, which got in trouble partly because political support for extending home ownership had earned them unstated promises that they would receive a government bailout if needed.
The Roosevelt administration made similarly arbitrary decisions, Shlaes said, and that hurt markets in the long term. She recommends laying out exactly what the markets should expect from the government.
"Before we give blanket deposit insurance to the world, we should say what banks are supposed to do," she explained. "If we believe that houses are an entitlement owed by the government, we should say that."
Roosevelt’s “forgotten man” was someone the market and the government passed by when bad times hit. But according to Shlaes, the "forgotten man" of the 1930s was the man who waited for a recovery that wouldn't come, or the man who ultimately paid the price for the government's misadventures in economic engineering. The "forgotten man" of today fits something closer to the latter description, Shlaes said.
"Now the 'forgotten man' is borrower, the person who's paying the mortgage, who's currently kept up with the mortgage, and now will have taxes, direct and indirect," as a result of radical new policies, she said. "That's a really bad thing to impose on someone who may be about to lose his job, especially when it's not his fault."
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Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
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Before joining the Daily Beast, Ross Goldberg worked as a staff reporter on the New York Sun's city desk, where he covered courts as well as general assignments. In college, he served as managing editor of the Yale Daily News.
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