Broken Bargain: Bankers, Bailouts, and the Struggle to Tame Wall Street

by Kathleen Day

Overview

“A sweeping account of financial calamities . . . shows how often we’ve been wracked by crises, and how quickly we forget why, setting up the next one.” —Mark Zandi, Chief Economist, Moody’s Analytics

In the 1930s, battered and humbled by the Great Depression, the U.S. financial sector struck a grand bargain with the federal government. Bankers gained a safety net in exchange for certain curbs on their freedom: transparency rules, record-keeping and antifraud measures, and fiduciary responsibilities. Despite subsequent periodic changes in these regulations, the underlying bargain played a major role in preserving the stability of the financial markets as well as the larger economy. By the free-market era of the 1980s and 90s, however, Wall Street argued that rules embodied in New Deal–era regulations to protect consumers, and ultimately taxpayers, were no longer needed—and government agreed.

This clear, deeply researched history documents the country’s financial crises, focusing on those of the 1920s, the 1980s, and the 2000s, revealing how the two more recent crises arose from the neglect of this fundamental bargain, and how taxpayers have been left with the bill.

“An engaging analysis . . . The section on the S & L crisis is excellent.” —Choice 

“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.” —Kirkus Reviews

Product Details

ISBN-13:	9780300240665
Publisher:	Yale University Press
Publication date:	06/24/2022
Sold by:	Barnes & Noble
Format:	eBook
Pages:	441
Sales rank:	576,840
File size:	10 MB

About the Author

Kathleen Day worked for thirty years as a business journalist with the Washington Post, Los Angeles Times, and USA Today before joining the Johns Hopkins Carey Business School as a professor of financial crises in 2013. She lives in Washington, DC.

Table of Contents

Preface xi

Introduction 1

Part 1 E Pluribus Inc.

1 The Danger and Necessity of Banks 7

2 A Cheat "upon Somebody 12

3 Inc. 19

4 The Civil War Tames Currency 35

5 Sunshine Charlie 45

6 Radio, Rayon, and Retail Credit 50

7 If It Seems Too Good to Be True … 59

8 Crash and Contagion 72

9 Tickled with Poverty 93

10 Moral Hazard 104

Part 2 A Wonderful Life: Socialism For The Rich

11 Zombie Banks 113

12 The American Home: Safeguard of American Liberties 130

13 Financial Cocaine 141

14 Cover-Up and Bailout 155

15 Russia Defaults 165

16 The Committee to Save the World 181

17 Dysfunctional Oversight 187

18 Enron: The Emperor's New Clothes 195

Part 3 Ill-Cotten Cain: Boom, Bust, And The Great Recession

19 Tent City 215

20 Financial Magic 225

21 The Subprime Prisoner's Dilemma 242

22 Feds Tell States: Shut Up, Sit Down 255

23 A Number Out of the Air 267

Part 4 Cockroaches In The Kitchen

24 Fake Accounts 299

25 Who Should Own a Bank 316

Notes 329

Bibliography 357

Index 407

Editorial Reviews

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.”—Kirkus Reviews

“An engaging analysis . . . Day clearly presents complex financial arrangements to explain what led to the crises and how government and bankers responded. The section on the S & L crisis is excellent.”—CHOICE magazine

“An engaging analysis.”—R. M. Hyser, Choice

“Day has written a sweeping account of financial calamities. She shows how often we’ve been wracked by crises, and how quickly we forget why, setting up the next one. Buckle in.”—Mark Zandi, Moody’s Analytics

"Kathleen Day provides a panoramic and insightful analysis of financial booms and crashes that have shaped our nation’s history. She demonstrates that loose credit and weak regulation have played key roles in promoting every speculative boom since the 1920s. Her book is required reading for everyone who wants to understand how to prevent the next financial crisis."—Arthur E. Wilmarth, Jr., George Washington University Law School

"An essential narrative of the regulatory cycles that predate financial crises, Broken Bargain offers an important lesson in the dangers of amnesia as Washington once again embarks on deregulation, repeating the mistakes of the past."—Sheila Bair, founding Chair of the Systemic Risk Council and former Chair of the FDIC

From the Publisher

"An essential narrative of the regulatory cycles that predate financial crises, Broken Bargain offers an important lesson in the dangers of amnesia as Washington once again embarks on deregulation, repeating the mistakes of the past."—Sheila Bair, founding Chair of the Systemic Risk Council and former Chair of the FDIC

Sheila Bair

"Kathleen Day provides a panoramic and insightful analysis of financial booms and crashes that have shaped our nation’s history.  She demonstrates that loose credit and weak regulation have played key roles in promoting every speculative boom since the 1920s.  Her book is required reading for everyone who wants to understand how to prevent the next financial crisis."—Arthur E. Wilmarth, Jr., George Washington University Law School
 

Arthur E. Wilmarth

“Day has written a sweeping account of financial calamities. She shows how often we’ve been wracked by crises, and how quickly we forget why, setting up the next one.  Buckle in.”—Mark Zandi, Moody’s Analytics
 

Mark Zandi

2018-10-28

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.

Kirkus Reviews