Henningsen: The long view

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(HOST) Public outrage over corporate use of taxpayer money to compensate rogue traders with millions in bonuses, has reminded commentator Vic Henningsen that sometimes you have to take the long view.

(HENNINGSEN) In 1790, the United States was a financial joke, in debt to just about everyone – to the tune of well over $15 trillion in today’s dollars. And this was in a nation of just over four million people. Alexander Hamilton, the country’s first treasury secretary, had to devise a plan to put the nation back on its financial feet.  Central to his program was a proposal to use taxpayer dollars to fund the national debt "at par", that is, at face value.  

Much of that debt was owed to American citizens who’d purchased government bonds to support the Revolution and to soldiers who’d been paid in government IOU’s instead of cash.  By 1790 those securities were essentially worthless. Most original holders had long since sold them off to financial speculators, who now stood to reap enormous profits.

Thomas Jefferson and James Madison opposed Hamilton’s plan. If government bonds were paid off in full, they argued, shouldn’t taxpayer money go to the original holders – the soldiers and others who’d sacrificed for the Revolution – and not to greedy speculators?

Despite public outrage, Hamilton answered "No."  The original holders took a risk selling their bonds, he said; speculators took a risk buying them.  The government – and this was his key point – cannot – must not – interfere retroactively in a financial transaction, even if the wrong people get the money.

Historians note that Hamilton’s decision – upheld by President Washington and Congress – helped stabilize the country’s precarious finances by restoring confidence that the government stood by its commitments.  Yet it also defined a tension between the American public and Wall Street that persists to this day.

That tension produced some memorable moments and some significant progress. Opposition to Hamilton’s financial policies fueled development of America’s first political parties and led, in 1800, to the ouster of Hamilton’s Federalists in favor of the more democratic followers of Jefferson and Madison.  In 1882, when a reporter asked railroad speculator William Henry Vanderbilt if his railroads shouldn’t be operated for public benefit, Vanderbilt famously responded "The public be damned!" Widespread outrage contributed to federal regulation of transportation and business, beginning in 1887. When J.P. Morgan profited handsomely from bailing the country out of financial crises in 1895 and 1907, Americans fumed, but could only push for tighter banking regulation, which came in the Federal Reserve Act of 1913.  
In each case public indignation produced long-term change for the better.

Today, even Alexander Hamilton might share our anger that tax dollars reward irresponsible financial institutions. But, he’d say, it’s what we do with that anger that matters.

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