Progressive Revival

Brandeis scholar Melvin I. Urofsky compares the financial crisis of a century ago to the one today in an op-ed in the New York Times.  Prof. Urofsky’s reflection on Louis D. Brandeis’ seminal book “Other People’s Money” reminds us to be wary of the danger inherent in greedy banks playing around with other people’s cash – and the interested law makers who help them do it.    

Some things never change. When President Obama spoke last week of “shameful” bonuses for bankers and the financial community’s “irresponsibility,” he echoed charges leveled nearly a century ago by Louis D. Brandeis. Brandeis, a commercial lawyer, leading reformer and future Supreme Court justice, described a dangerous combination of avarice, lack of accountability and poor oversight in “Other People’s Money, and How the Bankers Use It,” one of the best-known exposés of the Progressive era.

Published in 1914, the book was based on the revelations of the House of RepresentativesPujo Committee about the predatory practices of J. P. Morgan and other big bankers. “Other People’s Money” influenced both Woodrow Wilson‘s New Freedom agenda and Franklin Roosevelt‘s New Deal. It also offers valuable lessons for today.

Our current crisis, after all, was in part fueled by bankers making big gambles with other people’s cash. They bundled and sold sub-prime mortgages, took their profits, and then left others holding portfolios full of worthless, even toxic, paper. This was exactly the kind of behavior that Brandeis despised. He believed that it was one thing for an individual to put up capital in risky ventures, playing to win but prepared for failure. But he saw the bankers of his time dodging failure by manipulating the marketplace at the expense of smaller entrepreneurs and consumers.

As president, Wilson tried to put a stop to this. He read the book and called Brandeis in to help draft three bills crucial to the New Freedom agenda — the Federal Reserve Act, the Clayton Antitrust Act, and the law establishing the Federal Trade Commission. These measures allowed Congress to take away banks’ control over currency, banned interlocking directorates (in which banker representatives controlled other corporations), and established rules of fair competition.

The Value of Other People’s Money

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