Economic Disparity and American Democracy: Is it time for a new New Deal?

Jacob Vogel 5/2/2012

Modern Economic Disparity From 1979 to 2007 inflation adjusted incomes for the top 1% of earners increased by 224%.1 The top .01% saw their incomes grow by 390%.2 During the same period the incomes of the bottom 90% grew only 5%.3 Fewer families moved up the income ladder in the 1980s than in the 1970s, and even fewer moved up in the 1990s.4 Adjustments to the tax code made the gap between the after tax income of top earners and the rest of America greater than the pre-tax gap.5 As a result of decades of policy favoring the wealthy, income inequality has reached a level not seen since the run-up to the Great Depression.6 The progressive tax system, which was set up to ensure that wealthier Americans carry more of the tax burden, has been under attack.7 Using their political allies in Washington, the wealthy have been able to shrink the estate tax and roll back taxes paid by investors and corporations.8 The rest of Americans end up paying for these tax cuts in the form of reduced governmental services.9 The average American is losing because, unlike the wealthy, they do not have K street lobbyists to fight for their causes.10 It is a dying myth that in America hard work leads to financial success. Higher Education, while necessary to get ahead for most Americans, is becoming harder to
1

See Lawrence Mishel, Data on Income Gains Support 99ers Gripes, ECON. POLY INST. (Oct.19, 2011), http://www.epi.org/publication/data-income-gains-support-99ers/. 2 Id. 3 Id. 4 Richard Delgato, The Myth of Upward Mobility, 68 U. PITT. L. REV. 879, 901-902, n.142 (2007). 5 John W. Lee, Class Warfare 1988-2005 Over Top Individual Income Tax Rates: Teeter-Totter from Soakthe-Rich to Robin-Hood-in-Reverse, 2 HASTINGS BUS. L.J. 47 (2006). 6 Ezra Klein, Inequality Back at Record Highs, WASH. POST, June 11, 2010, available at http://voices.washingtonpost.com/ezra-klein/2010/06/inequality_back_at_record_high.html . 7 Teresa Tritch, Tilting the Tax System in Favor of the Rich, N.Y.TIMES, available at http://select.nytimes.com/ref/opinion/04talking.main.html?_r=1 . 8 Id. 9 Id. 10 Seniboye Tienabeso, Warren Buffet and His Secretary Talk Taxes, ABC NEWS, (Jan. 25, 2012), http://abcnews.go.com/blogs/business/2012/01/warren-buffett-and-his-secretary-talk-taxes/ .

obtain. The cost of going to college increased 439% from 1982-2007 (not adjusted for inflation).11 Students from lower-income families get smaller grants than more affluent students, and overall student borrowing has doubled in the last decade alone.12 In recent years the proportion of students from upper-income families has grown at the most selective United States (U.S.) colleges.13 Less advantaged students are more likely to attend a for-profit college.14 For-profit students get the special disadvantage of higher unemployment rates, lower earnings, and far greater debt burdens than their public or non-profit student counterparts.15 In fact, downward mobility is just as likely for a majority of middle class Americans.16 Many students are attempting to buck this trend by achieving advanced degrees. Between 1983 and 2009 post baccalaureate enrollment increased from 1.6 to 2.9 million students.17 As enrollment has increased so have the costs, especially for students who choose to become lawyers. In 1980 obtaining a JD was not particularly expensive compared to other types of graduate level training and law students graduated with little or no debt.18 Law Students today borrow heavily and begin their careers with substantial student loan debt.19 Several recent law school graduates, burdened by massive debt and bleak job prospects, are suing their respective Alma maters for distorting their post-

11

Tamar Lewin, College May Become Unaffordable for Most in U.S., N.Y. TIMES, Dec. 3, 2008, available at http://www.nytimes.com/2008/12/03/education/03college.html . 12 Id. 13 Delgato, supra note 4, at 903. 14 David J. Deming et al., The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? (NATL BUREAU ECON. RESEARCH, Working Paper No. 17710, 2011), available at http://www.nber.org/papers/w17710 . 15 Id. 16 Delgato, supra note 4, at 901. 17 Susan Aud et al., NCES 2010-028, NATL CTR. EDUC. STATISTICS: The Condition of Education, at 36 (2010). 18 N. William Hines, Ten Major Changes in Legal Education Over the Past 25 Years, ASSN AM. L. SCH., http://www.aals.org/services_newsletter_presAug05.php (last visited April 27, 2012). 19 Id.

graduation employment and salary statistics.20 In Modern America the barriers to financial success are higher than ever. When hard work does not pay off it is evidentiary of the existence of an American caste system. While it is nearly impossible to climb to the next socio-economic level, the system is more than willing to let Americans fall. Unemployment serves as a lubricant on the slide to the bottom of the caste system. In October of 2011 around 14 million Americans were unemployed.21 Add to that figure the additional 9.3 million Americans that are considered underemployed and the 2.5 million considered marginally attached to the labor force and you come up with a total of nearly 26 million Americans who were, at the very best, underemployed that month.22 The problem is not just in the quantity of jobs, but also in the quality of the jobs available.23 20% of adults in America have jobs that pay poverty-level wages.24 In fact, most of the new jobs created are in the low-wage, low-skill service sector.25 Unemployment makes life difficult for families that have savings to rely on, but in modern America many families are burdened by unprecedented household debt coupled with inadequate savings.26 Beginning in 2000, mortgage related debt dramatically accelerated the pace of debt accumulation.27 Prior to that, the growth of real household

20

Patrick G. Lee, Law Grads Sue Over Tuition, WALL ST. J. (Aug. 11, 2011), available at http://online.wsj.com/article/SB10001424053111904823804576500694179259396.html . 21 Ben Baden, The Ranks of the Underemployed Continue to Grow, U.S. NEWS (Oct. 19, 2011), available at http://money.usnews.com/money/careers/articles/2011/10/19/the-ranks-of-the-underemployed-continue-togrow . 22 Id. 23 Id. 24 Id. 25 Delgato, supra note 4, at 901. 26 Reuven Glick & Kevin J. Lansing, (FRBSF 2009-16), FED. RESERVE BANK S.F: U.S. Household Deleveraging and Future Consumption Growth (2009), available at http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html . 27 Id.

debt far outpaced the growth of real disposable income and wealth.28 In 2007 Americans owed $750 billion in revolving debt, up six-fold over a twenty-year period.29 This debt increase was fueled by an environment of easy credit tied to higher housing and stock prices.30 When the housing market crashed many families lost the collateral they assumed they could rely on in hard times. With little or no savings, a sea of underwater mortgages, and a shaky job market, less-fortunate Americans braced for financial ruin. In 2009, 1.41 Million Americans filed for bankruptcy, up a third from the prior year.31 The surge in bankruptcies was attributed to foreclosures and job losses.32 A large number of those were Chapter 7 bankruptcies, indicating that many Americans chose to walk away from their underwater homes.33 In 2005 an overhaul of federal bankruptcy laws aimed to promote Chapter 13 filings, which force consumers into debt repayment plans but allow them to keep certain assets. 34 The overhaul failed because many smart Americans realized they would be better off without the debt and their assets were not worth the headache. For the broke Americans who decide not to file for bankruptcy protection, the U.S. debt collection industry is ready to make them pay.35 The number of debt-related arrest warrants has been on the rise.36 Debtors Prisons were outlawed in 1833, but some

28 29

Id. Delgato, supra note 4, at 912. 30 Glick & Lansing, supra note 26. 31 Sara Murray & Connor Dougherty, Personal Bankruptcy Filings Rising Fast, WALL ST. J. (Jan. 7, 2010), available at http://online.wsj.com/article/SB126263231055415303.html . 32 Id. 33 Id. 34 Id. 35 Jessica Sliver-Greenberg, Welcome to Debtors Prison, 2011 Edition, WALL ST. J. (Mar. 16, 2011), available at http://online.wsj.com/article/SB10001424052748704396504576204553811636610.html . 36 Id.

judges are worried that the jump in debt-related arrests is creating a modern day version.37 More than a third of all U.S. states throw people who cant pay in jail.38 While our system of justice is incarcerating the unfortunate, the modern day robber-barons are relaxing on their yachts. Federal prosecutions for financial institution fraud fell to a twenty year low in 2011.39 The decade long trend of reduced financial institution fraud prosecutions indicates the close relations between DC insiders and the big banks, especially when coupled with the financial sector misconduct over recent years.40 In the information age Americans are more informed than ever, and it is not a coincidence that large masses of people are outraged at the inequalities that exist in the status quo. The Occupy Movement and the Tea Party indicate the power of collective knowledge can shift the focus of modern political debate, but is there evidence that real change is coming? A look into Americas past struggles has convinced me that a progressive shift is approaching. Lines can be drawn connecting the economic conditions that led to the American Revolution, the financial panics of the late 19th and early 20th centuries, the Great Depression, and the Great Recession. The legislative response to the current crisis will dictate the extent of the changes ahead.

37 38

Id. Id. 39 Alexander Eichler, Federal Prosecution of Financial Fraud Falls to 20-Year Low, New Report Shows, THE HUFFINGTON POST (Nov. 15, 2011),available at http://www.huffingtonpost.com/2011/11/15/financialfraud-prosecution_n_1095933.html . 40 Id.

Economic Reasons for the American Revolution In the decades leading to the American Revolution the colonists were burdened by economic policies that favored British nationals to the detriment of the colonies. The Navigation Acts, Scottish Rationalization, Parliaments Western Land Policies, The Stamp Act, and the Tea Act were among the Patriots leading economic reasons to revolt.

Navigation Acts Initiated in 1642, Parliament enacted the Navigation Acts in order to reestablish control and keep other nations out of the colonies.41 The Navigation Acts forced colonists to route certain enumerated goods to British ports before their re-exportation to their final destinations.42 Similarly, enumerated goods bound to the colonies had to be routed through British ports.43 The acts reserved all commerce between Europe and the colonies to British citizens (including colonists); this initially benefitted colonial merchants by reducing competition with the French and Dutch. 44 Over time, however, increased competition between the colonists and the British coupled with an expansion of the laws intended to protect British industry created hostility. 45 Prior to 1776 the country was evenly split between loyalists and patriots.46 The most predominant leaders of the Revolution were the very people who would gain from repealing the Navigation Acts: merchants, tobacco planters, and artisans.47

41 42

Larry Sawyers, The Navigation Acts Revisited, 45 ECON. HIST. REV. 262, 262 (1992). Id. at 263. 43 Id. 44 Id. at 275. 45 Id. 46 Id. at 266. 47 Id.

The Navigation Acts created a common market between Britain and the colonies, but the playing field was not level.48 For instance, colonial merchants were almost completely excluded from the lucrative tobacco trade due to mandatory procedures that tied up considerable amounts of working capital.49 After 1745 British merchants attempted to cut colonial merchants out of the British manufactured goods business by selling directly to shopkeepers with liberal extensions of credit and by conducting auction sales, selling large quantities of goods with very low markup.50 American merchants appealed to the courts for protection, but their cries fell on deaf ears.51 By 1763, a wave of bankruptcies brought down some of the most prominent colonial merchants. 52 The merchants solution was to boycott British imports (nonimportation).53 The non-importation movement did not begin as a merchants device to compel Parliament to repeal obnoxious legislation.54 Upper class merchants benefitted from non-importation by disposing of their inventories at higher prices, eliminating competition from upstart traders, and utilizing cheaper bills of trade (international currency).55 The effects of the boycotts were incidental.56 The Navigation Acts also prevented the colonies from manufacturing certain goods.57 British imports increased drastically in the quarter-century before the

48 49

Id. Id. at 267-68. 50 Id at 270. 51 Id. at 271. 52 Id. 53 Id. 54 Marc Egnal & Joseph A. Ernst, An Economic Interpretation of the American Revolution, 29 WM & MARY Q. 3, 6 n.7 (1972). 55 Id. at 21. 56 Id. at 21-22. 57 Sawyers, supra note 41, at 275.

Revolution.58 These factors threatened the livelihood of artisans.59 British goods were produced at lower wages and with higher productivity, creating a competitive advantage for the British.60 At the same time the cost of Transporting goods across the Atlantic was reducing, eroding the only advantage of colonial artisans.61 The non-importation boycotts stimulated manufacturing for colonial artisans and they wanted to continue the prosperity.62 The Navigation Acts allowed for an expansion of restrictions on colonial manufacture and Parliament was known to act to protect British industry without concern for the colonies.63 For artisans the threat of the status quo under the Navigation Acts was very real.64

Scottish Rationalization Scottish Rationalization, a process that lowered transaction costs in the South, was widely viewed as an invasion in an economic war.65 Prior to the Scottish invasion the colonial planters themselves dominated the regions commerce. 66 Planter indebtedness skyrocketed under the Scottish Rationalization.67 Scottish firms were successful because they financed their exports to Virginia out of pocket by advancing

58 59

Id. at 271. See id. at 276. 60 Id. at 276-277. 61 Id. at 276. 62 Id. at 277. 63 Id. 64 Id. 65 Sawyers, supra note 41, at 274. 66 Id. 67 Egnal & Ernst, supra note 54, at 25.

the Virginians credit to make up trade deficits.68 The credit allowed the planters to defer payment for European goods and freed up cash for expansion.69 By the 1760s the Scottish influence on Southern commerce threatened colonial planters hold on the regions commerce.70 The Scottish merchants were wielding political power to block legislation harmful to their cause in the Virginia House of Burgesses.71 Southern planters accused the Scottish traders of controlling tobacco prices, fixing exchange rates, and bribing legislators.72 The Scots also used their influence to manipulate Virginias monetary policy in their favor.73 During the Economic depression of 1772 and 1773 planters across the south stood shoulder to shoulder in a movement directed in large part against the Scottish mercantile community. 74

Parliaments Western Land Policy Prior to 1763 colonial boundaries stretched from sea to sea.75 After the French and Indian War the crown altered its position regarding western settlements, a position that aggravated colonists. 76 In a move to appease Indians for abandoning their French allies, the crown issued the royal proclamation of 1763, reserving western lands for Indian hunting grounds.77 The king also forbid colonist expansion into the west and

68 69

Id. Id. at 26. 70 Sawyers, supra note 41, at 274. The Scottish Tobacco houses extended credit to southern farmers in exchange for their future tobacco crops. The farmers used the credit to purchase imported goods from the Scots and, over time, became greatly indebted to them. Egnal & Ernst, supra note 54, at 25. 71 Sawyers, supra note 41, at 274. 72 See Egnal & Ernst, supra note 54, at 26. 73 Id.. 74 Id. at 28. 75 B.A. HINSDALE, THE OLD NORTHWEST, 120 (1888). 76 Id. at 121-123. 77 Id. at 123.

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required frontiersmen seated upon western lands to abandon them.78 Despite great sacrifice in support of Britain in its war with the French, the colonists were worse off after winning the war.79 George Washington and other prominent colonists viewed the proclamation as a mere vehicle to appease the Indians that would be abandoned in a few years.80 Patrick Henry led a land speculation group in Virginia and he boldly ignored the proclamation.81 In 1770 a group including Benjamin Franklin was denied the opportunity to purchase 2,400,000 acres south of the Ohio River with the purpose to establish a western colony. 82 The denial was included in a report by the Privy Council, who concluded by recommending the crown immediately issue a new proclamation upholding the Proclamation of 1763.83 Other land policies further infuriated the colonists. In 1774 the Quebec Act permanently severed the coastal colonies from the west by expanding the Canadian province to include all extra-colonial territory north of the Ohio River and west to the Mississippi River.84 The colonists viewed the Quebec Act as an attack against them.85 The British victory over the French in 1763 marked a major shift in the colonies.86 For the first time in history English-speaking people did not live under the fear of French or Spanish invasion, and the benefit of British protection no longer outweighed the

78 79

Id. Id. at 125. 80 Id. at 124-125. 81 Lawrence Henry Gipson, The American Revolution as an Aftermath of the Great War for the Empire, 1754-1763, 65 POL. SCI. Q. 86, 94 (1950). 82 Hinsdale, supra note 75, at 133. 83 Id. at 134. 84 Id. at 141. 85 Id. at 142. 86 See generally Gipson, supra note 75, at 86-104.

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burden of British regulation.87 At the same point in history Parliament took several missteps that pushed their once loyal colonies beyond the brink.

The Stamp Act American Whigs believed that under their constitutional charter they had a right not to be taxed except by their own consent or the consent of their representatives.88 The Stamp Act of 1765 challenged an established relationship between Britain and her colonies by imposing internal taxation.89 The Whigs viewed the drastic imposition as a breach of contract that could only be legal if both parties consented. 90 The British enacted the Stamp Act to offset some of the costs associated with the seven-year long French and Indian War.91 The view was that because America greatly benefitted from the result they should help with the cost.92 The Whigs argued the colonists bore a great burden during the war and they were only contractually obligated to submit to British regulation in exchange for protection.93 The Whigs also argued that a sizeable portion of the war debt was incurred fighting the French in Europe, the military contest was commenced to protect British and not colonial interests, and British, not colonial citizens were enjoying the spoils of the war.94 Governor Francis Bernard of Massachusetts agreed that his citizens probably could not bear the added tax after submitting to an amazing burthen of taxes during the

87 88

Id. at 102. John Phillip Reed, In Our Contracted Sphere: The Constitutional Contract, The Stamp Act Crisis, and the Coming of the American Revolution, 76 COLUM. L. REV. 21, 22 (1976). 89 Id. at 46-47. 90 Id. at 47. 91 Id. at 34. 92 Id. 93 Id. at 37-40. 94 Id. at 36.

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war.95 The regulation of colonial trade was worth two million pounds every year; the colonists thought that amount was enough to pay for British protection.96 Angry mobs terrified stamp agents into resigning and forced the repeal of the tax.97 If Parliament had determined to enforce the Stamp Act it might have led to open rebellion and civil war, ten years before the American Revolution. 98

The Tea Act When Parliament passed the Tea Act in 1773 the colonists reacted with unprecedented hostility.99 Allowing the East India Company to sell tea directly to the colonies was seen not as a scheme to reduce colonial tea prices, but as another instance of a British exporter seeking to swell his trade by dealing outside of established channels.100In Marc Egnal and Joseph A Ernsts 1972 article, An Economic Interpretation of the American Revolution, the authors stress the contextual importance of the long-term struggle between the colonial merchants and the empire, but they also point to the rising involvement of the lower orders of colonial society in demonstrations against the British.101 The Whig elite initially brought tradesmen, sailors, and laborers into the political fray during the 1760s.102 The wealthier patriots directed the mobs to attack and intimidate the stamp distributors and customs officials.103 The lower classes fury can be

95 96

Id. at 37. Id. at 40. 97 Gordon S. Wood, A Note on Mobs in the American Revolution, 23 WM. & MARY Q. 635, 642 (1966). 98 Gipson, supra note 81, at 100. 99 See Egnal & Ernst, supra note 54, at 24. 100 Id. 101 Id. 102 Id. at 28. 103 Id.

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attributed to the fact that they were among the first encouraged to buy with easy credit and, subsequently, the first to feel the economic pain during periods of business contraction.104 The more the lower classes became involved in the struggle the bolder their demands became.105 This new militancy frightened many of the merchants who now saw the threat of social upheaval.106 Research into areas such as the confiscation of loyalist estates, the nature of the new state governments, and so on, has shown that there was no social overturn accompanying the American Revolution and that what change did come about in the nature of society was most moderate.107 Viewed in this light the American Revolution was not a battle for freedom from tyranny but a fight over economic control. 108 The parallels between the modern economic system and the system in the decades leading to the American Revolution are striking. High levels of indebtedness, increasing bankruptcies, legislation favoring one group over the other, disparate access to legislators, courts that perpetuate unfairness, high barriers to enter lucrative fields, and increasing poverty seem prevalent both in 1776 and 2012. The solution in 1776 was a bloody revolt to replace the old boss with a new boss. In 2012 will the angry mob prevail?

Boom, Bust, and Distrust Consolidated Economic power has long been a fear of the American people. After the Revolution several states submitted proposed amendments that directly addressed the
104 105

Id.at 29. Id. 106 Id. at 29-30. 107 Id. at 6. 108 See id.

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issue. 109 New York proposed that the Congress do not grant monopolies.110 Massachusetts, New Hampshire, and Rhode Island proposed that the Congress erect no company of merchants with exclusive advantages of commerce.111 Economic panics in the late 19th and early 20th century stirred public outrage and lead to the establishment of greater public safeguards.

The Sherman Antitrust Act of 1890 In the years immediately before the Sherman Act, between 1888 and 1890, there were few who doubted that the public hated the trusts fervently. 112 The trusts were accused of creating poverty and dividing the country into two classes, the rich and the poor.113 It is widely believed that Congress passed the Act in response to the public outcry.114 Unfortunately, the legislation was not strong enough to prevent the boom and bust volatility of the free market.

The Panic of 1893 A bank panic is indicative of the publics distrust of the banking system.115 During panics multiple banks in several regions suffer bank runs, where fearful depositors rush to withdraw at once.116 During the Panic of 1893, 575 banks closed their

109

William L. Letwin, Congress and the Sherman Antitrust Law:1887-1890, 23 U. CHI. L. REV. 221, 226 (1956). 110 Id. 111 Id. 112 Id. at 222. 113 Id. at 225. 114 Id. at 222. 115 Mark Carlson, Causes of Bank Suspensions in the Panic of 1893, 42 EXPLORATIONS ECON. HIST. 56, 61-62 (2005). 116 Id. at 57.

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doors either permanently or temporarily.117 The flash of money hording causes a ripple effect in the rest of the economy, exacerbating the effect of the panic.118 The Panic of 1893 was preceded by a slew of banking missteps.119 In the months prior to the crisis, the gold reserves of the Treasury were nearing the legal limit required to maintain gold parity. Some contemporary scholars claim that this led to a fear of depression and that the crisis was really a run on the currency.120 The panic was preceded by a stock market crash and a large increase in the interest rate on call loans.121 The panic resulted in 15,000 business failures in 1893.122 Due to the Panic of 1893, some 20% of the labor force was unemployed. 123 In May of 1894 armies of unemployed men marched on Washington, D.C.124 Known most notably as Coxeys Army after one of the organizers, the men pressed for public works projects and articulated the need for a safety net in a commercialized industrial economy.125 The cause received widespread support in the public and was the first national protest against unemployment and the first movement to call for the Federal Government to take action.126

117 118

Id. See id. at 62. 119 See generally Id. 120 Id. at 59. 121 Id. at 59-60. banks used a substantial amount of the bank deposits they received to provide loans to brokerage houses involved in the stock and commercial paper/bond markets[t]he loans could be called in at the banks discretion and were therefore referred to as call loans. Id. 122 Id. at 60. 123 Anne Mayhew, Polanyis Double Movement and Veblen on the Army of the Commonweal, 23 J. ECON. ISSUES 555-562, 556 (June 1989). 124 Id. 125 Id. 126 Id. at 556-557.

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The Panic of 1907 The Panic of 1907 was different than its predecessors.127 One of the differences is exemplified in the increased role of the trusts.128 Before 1907 the financial distress during the busts were mostly centered at banks.129 By 1907 the aggregate value of trust company assetswas nearly the same as that of national banks and much larger than that of state banks.130 During the Panic of 1907 the contraction of loans and deposits of trust companies dwarfed those of banks.131 It is important to note the differences between banks and trusts in 1907. Trusts were regulated less than banks, had fewer restrictions on their activities and choice of assets, and until 1906 trusts in New York were not required to hold minimum reserves.132 With trusts investors faced higher risk, but there was also a potential for greater rewards.133 Because trusts took advantage of investment opportunities to which banks had limited access, trusts had relatively undiversified portfolios.134 In 1906 every sector of the economy seemed to be growing and Wall Street Oligarchs were amassing unprecedented wealth and power.135 The increasing role of Bucket Shops also led the way to the Panic of 1907. 136 Bucket Shops allowed smaller players to place bets on future stock values; they were

127

Jon Moen & Ellis W. Tallman, The Bank Panic of 1907: The Role of Trust Companies, 52 J. ECON. HIST. 611, 612 (1992). 128 Id. 129 Id. 130 Id. 131 Id. 132 Id. at 614. 133 Id. at 616. 134 Ellis W. Tallman & Jon R. Moen, Lessons from the Panic of 1907, ECON. REV. (May/June 1990), available at http://www.econseminars.com/Financial%20Panics/_PreSubprime%20Crises/Panic%20of%201907_Atlanta%20Fed.pdf 135 Brendan Sapien, Financial Weapons of Mass Destruction: From Bucket Shops to Credit Default Swaps, 19 S. CAL. INTERDISC. L. J. 411, 417 (2010). 136 Id.

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more like casinos than the stock market.137 In essence, Bucket Shops created a derivatives market that added to the unfettered speculation [that] contributed to the panic and stock market crash of 1907.138 The Panic of 1907 also displayed the traditional features of the previous panics.139 There were bank runs, the stock market crashed, interest rates spiked, and credit markets tightened.140 The panic started when a pair of wealthy financiers failed to corner the copper market in an attempt to prop up the United Copper Company.141 After the failed attempt the potential that United Copper could collapse caused a run on the Knickerbocker Trust Company.142 When Knickerbocker was forced to close its doors the panic spread.143 The panic subsided after a group of bankers led by J.P. Morgan poured capital into the failing banks, trusts, brokerage houses, and the New York Stock Exchange.144 In the wake of the Panic of 1907 Congress enacted the Aldrich-Vreeland Act, which put an emergency currency scheme in place.145 Congress also enacted the Federal Reserve Act to provide the establishment of Federal Reserve Banks, to furnish elastic currency, to afford means of rediscounting commercial paper, to establish more effective supervision of banking, and for other purposes. 146 In addition to Federal responses,

137 138

See Id. at 413. Id. 139 Moen & Tallman, supra note 127, at 616. 140 Id. 141 Sapien, supra note 135, at 419. 142 Id. at 419-420. 143 Id. at 420. 144 Id. at 421. 145 Id at 422. The currency scheme created a method of issuing currency based on the reserves in banks. Id. 146 Id.

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several state legislatures passed bills outlawing bucket shops in the years after the panic.147 The parallels between the financial panics of the late 19th and early 20th century and the Great Recession are numerous. In both eras people believed that the system was rigged to create two classes, rich and poor. In both 1907 and 2008 the financial crisis came to a head after a big player was forced to shut its doors. In the aftermath of 1907 and 2008 selected institutions were saved by a collective while others failed and laborers remained unemployed. Coxeys Army marched on Washington and paved the way for todays Occupiers. When bubbles burst tempers flare.

The Great Depression and the New Deal

The greatest economic collapse in Americas history was followed by the greatest expansion of the Federal government. We will briefly look at the environment that lead to the financial collapse then focus a majority of our attention on the legislative response to the issues triggered by the Great Depression and their shortcomings.

1920s Laissez-Faire In the 1920s there was a widely accepted view that the government should not regulate business because the markets were self-correcting.148 This pro-business attitude was coupled with other perks for the wealthy. In 1926 congress reduced the top marginal tax rate from 40% to 20%, doubled each taxpayers lifetime exemption from the
147 148

Id. Steven A. Ramirez, The Law and Macroeconomics of the New Deal at 70, 62 MD. L. REV. 515, 516 n.6. (2003).

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estate tax to $100,000, and repealed the 1924 gift tax. 149 The 1926 legislation also aimed to defund the Federal government by increasing the state death tax credit to 80%, from 25% of the federal tax due.150 In 1929 congress further reduced a variety of tax rates.151 At the same time the roaring 20s created vast wealth disparity.152 Between 1921 and 1928, the number of Americans with annual incomes over $1,000,000 increased from 21 to 511, while the number earning between $500,000 and $1,000,000 annually increased from 63 to 983.153 The wealth growth was fueled by a highly speculative and mostly unregulated stock market.154 In 1927 the Federal Reserve, fearing the existence of a speculative bubble, took a misstep by cutting rates and injecting more liquidity into the market.155 This fueled even more speculation.156 In October 1929 the stock market crashed and ushered in the Great Depression.157

The Great Depression After the crash the market continued to drop and general economic decline took hold.158 Demand tightened leading to deflated prices, especially for farm goods and commodities.159 The country was swept with a tidal wave of bankruptcies.160 Home

149

Jeffrey A. Cooper, Ghosts of 1932: The Lost History of Estate and Gift Taxation, 9 FLA. TAX REV. 875, 883 (2010). 150 Id. 151 Id. at 892. 152 Id. at 885. 153 Id. 154 Ramirez, supra note 148, at 526-527. 155 Id. at 527. 156 Id. 157 Thomas Ferguson, From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression, 38 INTL ORG. 41, 41-42 (1984). 158 Id. at 42. 159 See id. 160 Id.

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lending evaporated.161 Home foreclosures tripled.162 Unemployment rose to 25.2% and 30% of the 1929 Gross National Product evaporated by 1933. 163Panic stricken depositors ran on the banks leading to 5,000 bank failures between 1929 and 1933.164 At the time the money supply was linked to the nations gold reserves.165 The gold standard created an inelastic money supply, preventing the government from enacting monetary policy to combat the decline. 166Under the gold standard the country could increase the money supply only by increasing the physical quantity of gold reserves or by devaluing the price at which the Federal Reserve stands ready to buy and sell gold.167 In 1932 congress increased estate taxes in an attempt to generate additional revenue and avoid a downgrade of the nations credit rating.168 Congress also enacted a gift tax to insure wealthy taxpayers could not avoid the estate tax.169 The Hoover Administrations response to the crisis was aimed at enhancing business confidence. 170 He believed that government should not coerce, but it should cajole.171 The Great Depression destabilized the nations commitment to capitalism.172 Twenty-thousand poverty stricken World War I veterans occupied Washington D.C. (in 1932) in an attempt to compel the government to pay a bonus before the promised 1945

161 162

Ramirez, supra note 148, at 525. Id. 163 Id. at 524. 164 Id. at 525. 165 Id. at 528. 166 Id. 167 Ben S. Bernanke, The Macroeconomics of the Great Depression: A Comparative Approach, 27 J. MONEY CREDIT & BANKING 1, 5 (Feb., 1995). 168 Cooper, supra note 143, at 896-897. 169 Id. at 879. 170 Ramirez, supra note 148, at 526-528. 171 Id. at 529. 172 Id. at 525.

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date.173 President Hoover declined and unleashed the Army on the men, injuring thousands and killing three.174 Record numbers of Americans voted for the Socialist Party and the Communist Party in 1932.175 Radicals like Upton Sinclair, Huey Long, and Father Charles Coughlin became prominent political figures as the country reacted against Republican inaction.176 In the 1932 election ninety-seven new Democrats won seats in the House of Representatives, twelve new Democrats won seats in the Senate, and Democrat Franklin Delano Roosevelt won the Presidency with 57.4% of the popular vote.177

FDR and the New Deal Taking office in 1933, President Franklin Delano Roosevelt (FDR) implemented a series of emergency relief bills for the unemployed; an Agricultural Adjustment Act for farmers; a bill to reform the banking structure; a Securities Act to reform the stock exchange; and the National Industrial Recovery Act, which in effect legalized cartels in American Industry.178 He also abandoned the gold standard, promoted American exports, addressed the housing crisis, and investigated J.P. Morgan & Co.179 Widespread government regulation and stimulatory expenditures had not been tried before in a market based economy.180

173 174

Id. Id. 175 Id. at 526. 176 Id. 177 Roger I. Roots, Government by Permanent Emergency: The Forgotten History of the New Deal Constitution, 33 SUFFOLK U. L. REV. 259, 260 (2000). 178 Ferguson, supra note 157, at 42. 179 Id. 180 Ramirez, supra note 148, at 516-517.

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FDR grounded the New Deal reforms in his powers as Commander-In-Chief and justified their extra-constitutionality under war powers jurisprudence.181 In essence, FDR analogized the Depression to a wartime battlefield.182 Not only did the New Deal reject the laissez faire tradition of American economic policy and legal jurisprudence; FDRs emergency measures changed the relationship between executive and legislative authority.183Roosevelts administration played the emergency card at virtually every opportunity, alleging that the emergency doctrine allowed for virtually limitless action by the President during a national crisis.184 During the depression there was a large contingent of hard-core unemployed workers.185 The hard-core unemployed would be out of work or underemployed for years at a time.186 10% of the labor force was considered hard-core unemployed during the Great Depression.187 The federal government attacked the unemployment problem on multiple fronts.188 Several provisions were intended to reduce the labor pool.189 The Civilian Conservation Corps (CCC) kept young men out, child labor laws removed youth under sixteen, and Mexican Aliens were given one-way transportation back home.190 The National Industrial Recovery Act (NIRA) of 1933 was highly controversial because it expanded federal responsibility to include the welfare of the economy. 191 The NIRA gave the president the authority to approve codes of fair competition, which
181 182

Roots, supra note 177, at 261. Id. at 271. 183 Id. at 262. 184 Id. at 272. 185 Richard J. Jensen, The Causes and Cures of Unemployment in the Great Depression, 19 J. INTERDISC. HIST. 553, 556 (1989). 186 Id. at 555-556. 187 Id. 188 Id. 189 Id. at 571. 190 Id. at 571-572. 191 Robert L. Rabin, Federal Regulation in Historical Perspective, 38 STAN. L. REV. 1189, 1243 (1986).

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were federally enforceable standards for each industry.192 If the industry failed to act the president could promulgate a code of his own.193 The codes could cover a wide swath of business practices including: price levels, wage and hour provisions, and output restrictions.194 The goal of the NIRA was to address the problem of lagging business productivity.195. FDR hoped to pump new life into the supply side of the market by fostering intra-industry cooperation, eliminating price competition, and limiting output. The NIRA helped the unemployment problem by reducing hours worked.196 The heart of the act was ultimately declared unconstitutional. 197 The Agricultural Adjustment Act (AAA) was another supply-side approach with the aim of correcting the deflated value of crops.198 The AAA paid farmers if they agreed to limit the acreage they farmed.199. Unfortunately the AAA proved most beneficial to wealthy farmers who needed help the least.200 Despite FDRs intentions, both the NIRA and the AAA failed to achieve the desired results.201 The Emergency Banking Act gave the president the power to take any measure he found necessary to resolve the banking crisis.202 He demanded all banks take a four-day holiday, confiscated all privately held gold, and forced banks to produce financial

192 193

Id. Id. 194 Id. at 1244. 195 See generally, Id. at 1244-1246. 196 Jensen, supra note 185, at 571. 197 Ramirez, supra note 148, at 535. 198 Rabin, supra note 191, at 1247. 199 Id. 200 Id. at 1248. 201 Id. 202 Roots, supra note 177, at 267.

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information on demand.203 FDR believed that in order to function in a stable manner modern capitalism required significant regulation, especially in the financial sector.204 The Banking Act of 1933 (otherwise known as the Glass-Steagall Act) created the modern Fed by definitively vest[ing] monetary policy in the Fed and assur[ing] that the Fed [is] endowed with a high degree of independence.205 The Glass-Steagall Act also established the FDIC in order to end panic era bank runs and protect communities from the shocks associated with bank failures.206 Section 16 of the Glass-Steagall Act prohibits national banks from underwriting, selling, and dealing in securities.207 Section 21 prevented anyone engaged in the securities industry from administering checking or savings accounts.208 Prior to the Great Depression banks were allowed to underwrite securities.209 This caused a conflict of interests. 210 The rationale for separating securities from commercial banking functions was to put a check on the opportunistic banks, thus preventing them from duping nave investors.211 The goal of the law was to increase confidence in the public markets.212

203 204

Id. at 268. Ramirez, supra note 148, at 534. 205 Id. at 540. 206 Id. at 543. 207 Jonathan R. Macey, Special Interest Groups Legislation and the Judicial Function:The Dilemma of Glass-Steagall, 33 EMORY L.J. 1, 4-5 (1984). 208 Id. at 6. 209 Randall S. Kroszner & Raghuram G. Rajan, Organization Structure and Credibility: Evidence from Commercial Bank Securities Activities Before the Glass-Steagall Act, 39 J. MONETARY ECON. 475, 476 (1997). 210 Id. Since a commercial bank has loans outstanding to firms, it could favor the interests of its own equity holders in the following manner: if a bank had private bad news about a firm it had lent to, it could use its underwriting arm to certify and distribute securities on behalf of the firm to an it could use its underwriting arm to certify and distribute securities on behalf of the firm to an unsuspecting public and have the firm use the proceeds to repay the outstanding bank loan. Id. 211 Id. 212 Id.

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The Securities Act of 1933 sought to increase disclosure in order to inspire investor confidence and, in turn, revive investment.213 Skeptics argued, [a]ll the Act pretends to do is to require the truth about securities at the time of issue, and to impose a penalty for failure to tell the truth. 214Under the Securities Act of 1933, a registration statement must be filed prior to a public offering and a prospectus must be physically distributed to purchasers.215 Among the required disclosures are certified balance sheets, certified profit and loss statements for three years, and five years of earnings statements.216 While the Securities Act of 1933 focused on the special occasion of public offering, the Securities Exchange Act of 1934s provided a whole new framework of (continuous) disclosure applicable to a more limited group of issuers.217 The disclosures under the Securities Exchange Act of 1934 include an annual report (10-K), semiannual report (9-K) and enumerated monthly reports (8-K).218 The Home Owners Loan Act of 1933 was established to quell the mortgage crisis.219 Mortgages in the 1930s were usually five to ten years in duration, payments were made on interest only, and rates were 8% or higher.220 When the loan matured the entire unreduced principle was due, and most homeowners refinanced at that point for

213 214

Ramirez, supra note 148, at 535. William O. Douglas & George E. Bates, The Federal Securities Act of 1933, 43 YALE L.J. 171, 171 (1933). 215 Milton H. Cohen, Truth In Securities Revisited, 79 HARV. L. REV. 1340, 1344-1345 (1966). 216 Id. at 1345. 217 Id. at 1340-1341. 218 Id. at 1356-1357. 219 Peter M. Carrozzo, A New Deal for the American Mortgage: the Home Owners Loan Corporation, the National Housing Act and the Birth of the National Mortgage Market, 17 U. MIAMI BUS. L. REV. 1, 4 (2008). 220 Id. at 6.

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another five to ten years.221 The Act established the Home Owners Loan Corporation (HOLC) in order to purchase toxic mortgages form local lenders.222. The idea was that by increasing the local lenders liquidity it would enable them to originate more loans and ease the tight money crisis.223 The National Housing Act of 1934 was implemented to stimulate building without government spending and to improve conditions with respect to home financing.224 The National Housing Act created the Federal Housing Administration (FHA) and it aimed to achieve five goals.225 First, it promoted home modernization and insured loans were available for home improvements.226 Second, it created a sound mortgage instrument with amortization over a long period of time eliminating the need to refinance every five to ten years.227 It also established the Home Credit Insurance Corporation to guarantee a return on lenders investments in the event of foreclosure, created a national system of real estate appraisal, and for the first time allowed the creation of a secondary market for mortgage securities. 228 The Works Progress Administration (WPA) directly put millions of unemployed Americans to work on various schemes ranging from standard public works construction projects to cultural ventures involving the fine arts.229 The goal of the WPA

221 222

Id. Id. at 8. 223 Id. at 9. 224 Id. at 24. 225 Id. 226 Id. at 25. 227 Id. at 26. 228 Id. at 26-27. 229 Rabin, supra note 191, at 1249.

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was to show government money attacking the Depression mentality and to stimulate demand by putting money in workers pockets.230 The Social Security Act of 1935 constituted a dramatic step by creating an unprecedented mass-coverage federal safety net.231 Through the Social Security Act the federal government was making the statement that Americans will not be forced into poverty only because they are no longer able to work.232 Under the Act Americans were provided with unemployment insurance, retirement pensions, aid to dependent children, and other social insurance programs.233 The security provided under the Act helped foster increased consumer confidence in the years that followed.234 The Wagner Act (also known as the National Labor Relations Act) (NLRA) was designed to create a healthy middle class by imposing a mandatory scheme of collective bargaining.235 The NLRA shifted labor conflicts from the streets to hearing rooms.236 The result of collective bargaining put more money in the hands of cash strapped laborers, who were likely to spend their extra income and stimulate the economy.237 The Tennessee Valley Authority Act was a plan to use federal funds and oversight in order to improve the lives of the Americans living in the impoverished Tennessee Valley.238 The Act established the Tennessee Valley Authority (TVA) to handle flood control, to develop the Tennessee River for navigation, and to generate electric power,

230 231

Id. at 1250. Id. 232 See id. at 1251. 233 Ramirez, supra note 148, at 546-547. 234 Id. at 547-549. 235 Id. at 549-551. 236 Id. at 551 n. 265. 237 See id. at 551. 238 Id. at 552.

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among other things.239 The Public Works Administration was the first nationwide federal program dedicated to public works and ultimately led to the Interstate Highway System.240 The Servicemens Readjustment Act of 1944 (the GI Bill) provided WWII veterans with funds for education, subsidized mortgages for housing, and low interest business loans.241 To combat the Great Depression, FDR used the federal government in ways never before conceived. New Deal programs aimed at assisting those hit hardest by the economic downturn, stabilizing the economic environment, and investing in infrastructure to foster a turn around.

History repeats itself: the rise of laissez-faire deregulation Despite its many successes, there are many criticisms of New Deal programs. The distribution of funds under the New Deal did not go primarily to states with high unemployment and low incomes.242 The politics of the day ruled as larger grants of funds were allocated to swing states.243 Black Americans were also treated unequally under the New Deal because they were poorly organized and weak politically.244 Some critics argue that New Deal programs did not go far enough. For instance, the G.I. Bill excluded women, veterans of color, and veterans that could not afford to

239 240

Id. Id. at 554. 241 Id. at 557. 242 John Joseph Wallis, Employment, Politics, and Economic Recovery during the Great Depression, 69 REV. ECON. & STAT. 516, 516 (1987). 243 Id. 244 Marc W. Kruman, Quotas for Blacks: The Public Works Administration and the Black Construction Worker, 16 LAB. HIST. 37, 37-38 (1975).

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own a home. 245 Conservative critics argue that the New Deal went too far.246 By the late 1970sthe regulatory system came under close scrutiny by policy institutes and journals, academic disciplines, and politically influential public officials who all came to focus on a clear and dominant emerging theme- deregulation. 247 It is not a coincidence that the economic scale started to shift heavily in favor of the wealthiest 1% of Americans at the same time that deregulation became popular among politicians. The first shots in the class war were fired long before the Regan revolution or the Occupy Movement. Small government conservatives have focused their efforts on dismantling New Deal programs since their inception. Looking at the era before the Great Depression and the one before the Great Recession and it is obvious: history repeats itself. So, what is the perfect toxic stew for cooking up macroeconomic chaos? Is it when industries run wild under the guise of selfregulation? When the income and wealth gaps widen to proportions that dwarf the Grand Canyon? When the markets are flying on cocaine induced speculation? When the political promises of the day are to reduce the burden on the most affluent? Perhaps the most destructive deregulation occurred in 1999 when President William Jefferson Clinton signed the Gramm-Leach-Bliley Act (GLBA) into law, repealing the parts of the Glass-Steagall Act that separated the securities business from commercial banking.248 Further, GLBA expanded the Feds power.249 After the GLBA

245

Florence Wagman Roisman, National Ingratitude: The Egregious Deficiencies of the United States Housing Programs for Veterans and the Public Scandal of Veterans Homelessness, 38 IND. L. REV. 103, 111 (2005). 246 See Rabin, supra note 191, at 1316. 247 Id. 248 James R. Barth, R. Dan Brumbaugh, & James A Wilcox, The Repeal of Glass-Steagall and the Advent of Broad Banking, 14 J. ECON. PERSPECTIVES 191, 191 (2000).

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the Feds Authority grew to include banks, securities firms, and insurance companies.250 With Glass-Steagall out of the way, after eight years under laissez-faire President George W. Bush, a stock market crash, and a mortgage crisis, President Barack Obama faced the second worst economic downturn our fragile nation has faced in its history.

The Protest Years Most Americans believe the Great Recession was partially caused by a lack of government oversight in the financial industry.251 The Treasury Department listed several causes including excessive speculation in the housing market, excessive risk taking and levels of debt at financial institutions, overreliance on private credit rating agencies, risky unregulated derivatives trading, and financial sector salaries that rewarded risk-taking without penalties for failure.252 In order to soften the blow of the governments reaction to the crisis, finance, insurance, and real estate industries spent $223 million lobbying in the first half of 2009.253 In response to the financial crisis the Federal Reserve Bank exercised extraconstitutional powers.254 By purchasing $1.25 trillion in toxic mortgage backed obligations, a power not granted to it by Congress, the Fed violated the U.S. Constitution

249

Chad Emerson, The Illegal Actions of the Federal Reserve: An analysis of how the Nations Central Bank has Acted Outside the Law in Responding to the Current Financial Crisis, 1 WM & MARY BUS. L. REV. 109, 120 (2010). 250 Id. 251 Jeff Madrick, They Didnt Regulate Enough and Still Dont, 56 N.Y. REV. BOOKS (2009) available at http://www.nybooks.com/articles/archives/2009/nov/05/they-didnt-regulate-enough-and-stilldont/?pagination=false . 252 Id. 253 Id. 254 See William Poole, Ending Moral Hazard, 66 FIN. ANALYSTS J. 17-24, 20 (2010).

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which requires an act of Congress to appropriate government funds.255 During the same period the Fed has been reluctant to disclose its activities.256 The appearance of corruption and lack of transparency has fueled a mass uprising. The right wing Tea Party movement demands a strict adherence to the Constitution.257 Fueled by conspiracy theory, many Tea Partiers believe President Obama and his predecessors are members of an international network of wealthy elites who undermine the Constitution for their benefit.258 Most Tea Partiers are new to political activism and feel they have been awakened by the recession.259 Their goals include the abolition of the Federal Reserve, the federal income tax, several federal agencies, and to end the practice of government bailouts of private institutions.260 On the left the leaderless Occupy Movement has risen in the wake of the financial crisis.261 A majority of Occupiers are unemployed young people. 262It is difficult to encapsulate what the Occupy Movement stands for.263 Some argue that they are against economic disparity and for reform of financial institutions and American politics.264 The Declaration of the Occupation of New York City places the blame for the ills of society on the back of the corporations that control nearly every aspect of our lives.265

255 256

Id. Id. 257 David Barstow, Tea Party Lights Fuse for Rebellion on Right, N.Y. TIMES (Feb. 16, 2010) available at http://www.nytimes.com/2010/02/16/us/politics/16teaparty.html?pagewanted=all . 258 Id. 259 Id. 260 Id. 261 See Brian D. Boydston, What Exactly does the Occupy Movement Want?, THE HUMANIST (Jan.-Feb., 2012) available at http://thehumanist.org/january-february-2012/what-exactly-does-the-occupymovement-want/ . 262 Id. at 20. 263 See generally Id. 264 Id. at 21. 265 See generally Unknown, Declaration of the Occupation of New York City, (Sept 29, 2011) available at http://www.nycga.net/resources/declaration/ . We come to you at a time when corporations, which place profit over people, self-interest over justice, and oppression over equality, run our governments. Id.

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Both Tea Party and the Occupy Movement participants are calling for criminal prosecutions of white collar crimes that led to the mortgage crisis and financial collapse of 2008.266 The Obama Administration has responded to these cries by appointing a prosecutorial group led by New York Attorney General Eric Schneiderman.267 It will take a long time for this team to build cases because under the Bush Administration the cops were taken off the beat.268 President Bush loaded agencies with anti-regulatory officials and reassigned the F.B.I.s white-collar experts to terrorism cases.269

Progressive Legislation under President Obama President Obama has signed into law some progressive legislation aimed at correcting the inequalities of the day, but his efforts fall short of the rapid federal expansion under the New Deal. Will growing populism push the government to fund more expansive relief? A look at important progressive legislation passed under President Obama should help us predict the future. The Lilly Ledbetter Fair Play Act of 2009 was a victory for employees who have faced discrimination in the workplace.270 The Act lengthens the statute of limitations in certain discrimination cases.271 This strips employers of the Statute of Limitations

266

June Carbone, Why do Dangerous Financial Criminals Roam Free?, ALTERNET (Feb. 4, 2012), available at http://www.alternet.org/economy/153997/why_do_dangerous_financial_criminals_roam_free/?page=entire 267 Jessica Yellin, New York Attorney General to Lead Risky Mortgages Team, CNN.COM (Jan. 25, 2012), available at http://www.cnn.com/2012/01/25/politics/sou-risky-mortgages/index.html?iref=allsearch . 268 Carbone, supra note 266. 269 Id. 270 See generally Robin E. Shea et al., The Impact of the Lilly Ledbetter Fair Pay Act of 2009: an Immediate Look at the Legal, Governmental, and Economic Ramifications of New Legislation Regarding Equal Pay Based on Gender, ASPATORE SPECIAL REPORT 17 (2009). 271 Id.

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defense and forces them to prepare to defend themselves over compensation, benefits, promotion, demotion, and job assignment decisions.272 The American Recovery and Reinvestment Act (ARRA) was a $787 billion stimulus fund that propped up cash strapped state and local governments, helped states pay for health care and education expenses, and required states to use the funds immediately or risk losing them.273 Race to the Top, an education fund under ARRA that rewarded innovative approaches, circumvented states by including $900 million in funds for localities.274 The ARRA contained a bypass provision that allowed state legislatures to overrule governors who choose to reject the funds.275 This circumvention raised concerns that the federal government was undermining state sovereignty.276 President Obama signed a bill expanding the State Childrens Health Insurance Program (SCHIP) in February 2009, reversing President Bushs trend of vetoing similar expansions.277 The bill provided health care to 11 million children; at the signing ceremony the President indicated that he planned to cover all Americans.278 The Patient Protection and Affordable Care Act of 2010 (ACA) expanded health insurance to 32 million of the countrys 55 million uninsured citizens.279 The ACA prevents insurance companies from rejecting people who have pre-existing conditions, removes caps on benefits, limits premium increases and the amount insurance companies spend on non-medical expenses, expands Medicaid to cover more impoverished

272 273

Id. Gillian E. Metzger, Federalism Under Obama, 53 WM. & MARY L. REV. 567, 587-589 (2011). 274 Id. at 590. 275 Id. at 593. 276 Id. 277 Janet L. Dolgin, Class Competition and American Health Care: Debating the State Childrens Health Insurance Program, 70 LA. L. REV. 683, 685 (2010). 278 Id. 279 Metzger, supra note 273, at 572.

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Americans, and extends childrens eligibility to be covered by their parents insurance up to the age of 26.280 The ACA also creates an individual mandate that forces individuals to buy health insurance.281 The mandate is being hotly contested.282 The Supreme Court is considering its constitutionality and may strike down all or part of the law. Ultimately, to open access to health care for millions of Americans is a progressive victory even if it proves to be short lived. The 2009 Car Allowance Rebate System, aka Cash for Clunkers, provided vouchers of up to $4,500 to individuals who traded in their older, less-efficient motor vehicles for newer and more fuel efficient replacements.283 The program directly increased national fuel efficiency and assisted the battered auto industry.284 The program was the first of its kind and proved highly popular.285 Indirect effects of the program were increased health and safety by replacing high-polluting older vehicles with new cars with modern safety and emissions devices.286 Critics of the program note that it disproportionately benefitted some but not all, it did not help those in the most need, the program was too expensive, and amounted to corporate welfare by propping up the auto industry.287 In an attempt to resurrect the American auto industry, the Obama Administration provided significant financial assistance to General Motors and Chrysler.288 The Treasury

280 281

Id. Id. at 573. 282 See Id. 283 Marianne Tyrell & John Dernbach, TheCash For Clunkers Program: A Sustainability Evaluation, 42 U. TOL. L. REV. 467, 467 (2011). 284 Id. at 468. 285 See generally id. at 467-468. 286 Id. at 482-483. 287 See generally, id. 288 Steven M. Davidoff, Uncomfortable Embrace: Federal Corporate Ownership in the Midst of the Financial Crisis, 95 MINN. L. REV. 1733, 1733-1734. (2011).

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Department concluded the cost of liquidating the companies would outweigh the cost of providing assistance, and that each company would be able to function without governmental involvement after the restructuring.289 In addition to other considerations, the Treasury Department ensured that jobs would stay in the United States with provisions in the companys financing documents.290 Congress further protected American jobs by reversing attempts by the companies to close a number of dealerships.291 The Public-Private Investment Program (P-PIP) was established to inject liquidity into the markets by using Troubled Asset Relief Program (TARP) capital292 and capital from private investors to buy toxic Legacy assets from U.S. financial Institutions.293 PPIP used FDIC debt guarantees and Treasury equity co-investment in order to attract private capital.294 In December 2010 the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law by President Obama. The tax compromise package extended Bush era tax cuts along with other forms of tax relief in exchange for a temporary extension of unemployment insurance.295 The act also included estate tax relief and tax incentives to invest in machinery and equipment.296

289 290

Id. at 1745. Id. at 1750. 291 Id. 292 TARP was signed into law by President George W. Bush on Oct. 3, 2008 and provided $700 billion to directly inject liquidity into the financial markets. See generally, Campbell L. Harvey, The Financial Crisis of 2008, What Needs to Happen After TARP, SOC. SCI. RESEARCH NETWORK (Oct. 5, 2008), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1274327 . 293 Public-Private Investment Program (P-PIP) in the Real World, 7 No. 16 PLI POCKET MBA 1 (2009). 294 Id. 295 Tax Relief, Unemployment Insurance, Reauthorization, Job Creation Act of 2010, 35 CONSTR. CONTRACTS L.REV. 41(2011). 296 Id.

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In July 2010 President Obama signed the Dodd-Frank Wall Street Reform Act into law.297 The Act, at 848 pages, falls short of the effectiveness of the 34 page GlassSteagall Act.298 Some good did come out of the Act, including increased capital requirements for large banks and increased regulation of non-bank financial companies.
299

The Act also created the Bureau of Consumer Financial Protection (BCFP), but it is

unproven if the BCFP will be effective because its decisions can be set aside by the Financial Stability Oversight Council (FSOC), another new entity created under the Act.300 The FSOC is a multi-agency oversight body created to improve coordination and led by the Treasury Department.301 Dodd-Frank does little to close regulatory gaps; in fact it creates more regulatory organizations instead of consolidating.302 The Volker Rule appears to prohibit banks from trading on their own behalf or acquiring interest in private equity or hedge funds, but there are numerous loopholes.303 Despite assurances to the contrary, under DoddFrank Too-Big-To-Fail (TBTF) financial institutions will still be able to privatize their profits and socialize their losses.304 Despite public outcry demanding the dismantling of behemoth institutions, Dodd-Frank does little to even mitigate TBTF.305

297

Arthur E. Wilmarth, Jr., The Dodd-Frank Act: A Flawed and Inadequate Response to the Too-Big-ToFail Problem, 89 OR. L. REV. 951, 954 (2011). 298 Reza Dibadj, Dodd-Frank: Toward First Principles?, 15 CHAP. L. REV. 79, 80 (2011). 299 Usha Rodrigues, Corporate Governance in an Age of Separation of Ownership from Control, 95 MINN. L. REV. 1822, 1858 (2011). 300 Dibadj, supra note 298, at 85-86. 301 Id. 302 See id. at 85-90. 303 Id. at 98-99. 304 Id. at 101. 305 Id.

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President Obama attempted to pass the American Jobs Act, but the bill was defeated in the Senate.306 The Act would have prohibited discrimination against the unemployed and provided incentives for employers to hire veterans and the chronically unemployed.307

Conclusion It is apparent that the 2012 version of America is ripe for an overhaul. Like in the period before the American Revolution, one class of politically connected citizens reaps a vast majority of societys rewards over all others. The field of play is uneven. Consolidated economic power, greatly feared in the late 1800s, is commonplace in todays America. In the aftermath of the 2008 economic collapse the oligarchs called for greater deregulation, an element of all financial collapses including the Panic of 1907 and the Great Depression. Despite current economic conditions, the wealthy received an extension of Bush era tax cuts. The Masters of the Universe are in for a surprise. In the Information Age more and more of the disenfranchised are enlightened to the cause of their plight. They realize that hording at the top causes hunger at the bottom. Following a tradition of protest that began with Coxeys Army, Occupy Wall Street and the Tea Party are proving their political worth. The legislation passed under President Obamas watch has not gone far enough to establish greater equality within our society. Unlike FDR, President Obama has not used emergency powers to fix the broken system. Unlike FDR, President Obama has not

306 307

From the Hill, 17 No. 22 QUINLAN, HR COMPLIANCE L. BULLETIN 9 (Nov. 25, 2011). Id.

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directly put the chronically unemployed back to work. In fact, under President Obamas watch economic disparity has continued to grow, the tax code is still riddled with loopholes for corporations and the wealthy, and banks are allowed to continue to gamble with their depositors money on the open market with government protection in case of failure. President Obama has had some success getting legislation passed that helps the lower classes, but the help is not enough to close the chasm between the classes that has grown out of control since the 70s. The angry mobs are growing restless. The ruling class should take a play out of the Founding Fathers playbook and learn to respect societys lower ebbs. If not, they will learn to fear them. America needs a new New Deal. We need government investment that puts the chronically unemployed back to work. We need works projects that fix our infrastructure and pave the way for a brighter future. We need to return to a progressive tax system so we can make college affordable, invest in research and development, and create the next American Century. We need to break up institutions that are too large to regulate and fund our regulators to insure that cheating businesses get caught. We need to stiffen penalties and close gaps that allow the connected to escape responsibility. We need to prosecute white collar criminals. We need to outlaw special-interest-drafted legislation and force our politicians to do the job they were hired to do. We need to ensure they have time to represent their constituents by mandating public financing of elections. We need to stem the influence of money on our political system. We need a constitutional amendment that overturns the outrageous decision in Citizens United v. F.E.C.308

308

Citizens United v. F.E.C., 130 S. Ct. 876 (2010).

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There are numerous steps we could take to start to repair this country. The greatness of FDR can be directly connected to his boldness. He didnt take no for an answer and when he failed he tried a new approach. President Obama should follow that example.

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