Tyler Cowen: belief

Transcript context

…Interestingly, Carter Glass and Hoover, and by the way, even Roosevelt did not want to implement the FDIC. This idea of deposit insurance was super unpopular — both Republicans and Democrats — because they believed that it was going to effectively allow banks to almost become too big to fail in the context that you would basically be supporting everybody, and those that were weaker were going to have the same kind of support that the strong banks had. The other thing I was going to mention is, we all live with debt today as if it’s water. It’s part of our system. Prior to 1920, 1919, it was a moral sin for many Americans to take on debt. People didn’t do that. You were sort of the dregs of the universe if you were a debt holder. That really shifted, I think, in 1919 when John Raskob, who was running General Motors at the time, wanted more people to buy cars. He said, “How are we going to get people to buy more cars? We’re going to lend them the money to buy the cars.” That really shifted the mindset around debt. That’s why I think this whole period in the 1920s is such a remarkable decade, because it really was a shift in the way we did everything that, in so many ways, actually represents how we live today. Keep in mind, when I say something like deposit insurance, I mean that quite literally. Quite late into the 20th century, a lot of European nations — they don’t have formal deposit insurance. They have the equivalent of it through different kinds of bank bailouts. They make sure depositors are made whole. The kind of explicit numerical commitment that the FDIC made, say, even Germany thought was a bad idea until relatively recently, so Roosevelt was not as crazy as he sounded. But if you simply have some kind of bank lending and recapitalization program so the money supply doesn’t go bust, that would have been good enough, whether or not it’s exactly the FDIC, at least in my opinion. How is it that, that you were influenced by Alex Tabarrok on Glass-Steagall? I saw that in the notes to your book. Alex and I are co-bloggers, of course, but I’m curious what the exact transmission is. The transmission was that, as I was really trying to get underneath the construction of the Glass-Steagall bill — this is the bill that was passed in 1933 to effectively break up the banks, the casino side of the bank from the commercial side of the bank. This is what ultimately leads, for example, J.P. Morgan to spin off one of its units to become what turns out to be Morgan Stanley in 1935. I wanted to really understand how that bill was constructed. You would often hear from people like Elizabeth Warren and others about this bill in 2008, which, of course, was upended in the Clinton administration, being responsible for the fact that we even had a crisis. I was trying to really get under the covers of that story and the story of Carter Glass. As I was doing that, I was fascinated to learn that the Glass-Steagall bill was not as pure as I think most people in the public thought it really was. It was not that he, unto himself, had decided that this bill was going to look very much like the bill that was put in place in 1933. In fact, to some degree, the bill was as corrupted as ever. Parts of the bill were ultimately written by effectively a member of the Rockefeller family who owned Chase, and it was done in large part to shiv, if you will, J.P. Morgan, its competitor. Your fellow blogger did some remarkable work and wrote a paper about a bit of this, and it turned out to be a fabulous treasure map for me. As I went back to try to excavate some of the archival material — letters, and other things — to really get underneath this, it actually led me to find some fascinating stories about the fact that Carter Glass was not really interested in breaking up banks like J.P. Morgan at all. In fact, it sided so dearly with J.P. Morgan, and some people thought that he was in the pocket of the bankers, in fact.…

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