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Government programs that keep us off our backs

Saul Friedman | Gray Matters

October 4, 2008

Social Security had its 73rd birthday in August, but there was another commemoration this summer that has special importance this year. That was the 75th anniversary, on June 16, of the Federal Deposit Insurance Corp.

Within days after a news conference celebrating its birthday, the FDIC took over one of the nation's largest banks, IndyMac Bancorp, and FDIC chairwoman Sheila Bair assured depositors that money and IRAs were safe. The agency, she said, was ready to handle other failures expected as more banks confessed to billions in losses on loans and investments gone bad. So far, there have been 14 bank failures.

The FDIC, Bair said, is getting 30,000 calls a month from nervous consumers asking if their banks, and their deposits, are safe. They were assured the FDIC insured their deposits up to $100,000 and IRAs up to $250,000. The FDIC, Bair said, has brought "confidence and stability" to the banking system.

But it wasn't always so. One in five banks were failing when, on March 12, 1933, just a week after taking office, President Franklin D. Roosevelt explained in his first "fireside chat," that most of the nation's banks had been closed to avoid runs and ruin. Just three months later, the Banking Act of 1933 gave birth to the FDIC. Since then not a single depositor has lost a penny on an insured deposit.

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Another of the agencies born during those early New Deal days has great relevance for today. The Federal Housing Administration (FHA) was founded in 1934 to revive the almost dead housing market by insuring mortgage loans to home buyers. It is now the world's largest insurer of mortgages and has insured 34 million properties over the years.

While the housing and mortgage markets today are seeing declines not experienced since the Depression, FHA mortgages remain solid. Amid the current chaos, the FHA, like the FDIC, brings confidence and stability to the housing market and banking. And it produces real wealth that trickles down from government: In 1934, the United States was a nation of renters. Now more than 68 percent of Americans own their homes, thanks to FHA and the GI Bill.

After paying off an initial $300-million loan from the Treasury to get started, the FDIC, which gets its funds from member federal banks that pay for the insurance, doesn't use taxpayers' funds. And the FHA says it "is the only government agency that operates entirely from its self-generated income and costs taxpayers nothing."

That's the way government is supposed to work and it's why Social Security, the FDIC and FHA, among other New Deal creations, have flourished for three quarters of a century, which is more than can be said for a lot of American banks and corporations. So why do we disparage the New Deal as old-fashioned and out of date?

One of the New Deal programs most ridiculed (by conservatives) was the WPA, the Works Progress Administration, which was seen as a "make work" boondoggle. But did you know the Alamo, in conservative Texas, was restored by WPA labor? Or that San Antonio's river was beautified by the WPA and became the river walk it is today? Or many improvements in national parks, like roads, trails, and fire towers, were the work of the WPA or the Civilian Conservation Corps?

The Tennessee Valley Authority, another New Deal program, brought electricity to the impoverished southeast and ended malaria in the region.

How many highway bridges, sewer main breaks, bad water systems and rutted roads could be fixed by a modern new deal? How many people could be employed building, fixing and making the things? Isn't that what government is for when the private sector, like manufacturing, disappears or the housing and banking industries are paralyzed?

There are signs that Americans want that sort of government. Michael Lind of the New American Foundation wrote in the Aug. 15 issue of "Salon" that a majority of Americans never ceased supporting New Deal policies, such as Social Security and the GI Bill. Who would abandon the FDIC or FHA now?

A recent Rockefeller/Time poll reported that majorities support Medicare, universal health care, and more spending on public works, the environment and alternative energy.

There is even some movement toward New Deal-style programs. Congress approved a new GI Bill. The latest housing bill is New Dealish. This anti-regulation administration has been so frightened by the credit meltdown that the Treasury secretary and Federal Reserve chairman have nationalized American International Group and taken over Fannie Mae and Freddie Mac. Maybe we'll reverse the folly of bank deregulation permitting and encouraging heedless speculation, which ended in a kind of G"tterdämmerung.

And maybe the next administration will use some of the New Deal models to revive the American economy. Sen. John McCain said he had problems with the new GI Bill. He said he opposed the bill because it rewarded vets who didn't serve long and would not encourage people to stay in service. Sen. Barack Obama sounds progressive, but he has not yet told us whether he'd be as bold as FDR.

Unfortunately, both candidates have advisers who were architects of the repeal of the New Deal's Glass-Steagall Banking Act prohibiting commercial banks from making the kind of investments that brought today's crisis. They are former Sen. Phil Gramm, a right-wing Texas Republican, now lobbyist for a Swiss bank under investigation, and Robert Rubin, Bill Clinton's former Treasury secretary, who left government to run Citibank, now tottering. No matter who wins the election, or how the credit crisis ends, bankers won't lose.

WRITE TO Saul Friedman, Newsday, 235 Pinelawn Rd., Melville, NY 11747-4250, or by e-mail at saulfriedman @comcast.net.