While discussing the financial crisis in class, I've tried to make the point that there is nothing new under the sun. The following op-ed from the Boston Globe (and an approving second from Salon) reminds us that this is true for the current dilemma over how to handle toxic assets. Alexander Hamilton, it turns out, had to deal with what we now call toxic assets when he was Treasury Secretary:
When he took office the new republic was drowning in a sea of wild financial speculation and crushing debt from the Revolution. To pay off these obligations the 13 states and the Continental and Confederation Congresses printed paper money to the point where it had become worthless. When the printing press could no longer suffice, they resorted to borrowing funds. Altogether by the time Hamilton took office the states and the federal government owed more than $77 million, a sum roughly equivalent to more than 10 times the government's budget. In a decade and a half of incessant printing and borrowing, these obligations had been sold, resold, bartered, and bundled so many times that no one understood their "real" value. Unless Hamilton could bring sense to this financial mess the republic might collapse.
Hamilton proposed that regardless of their "real" value the federal government should assume these debts at their face value. Southerners saw this as a power grab by northern bankers and merchants aimed at enhancing the power of the federal government over the states. Worse, they argued, it would reward greed and double dealing.
Speculators would make out like bandits, and since they tended to live in northern states, so would the north in general. So southern senators and representatives could kill the deal if they wanted, but he goes on to remind us that a solution was arranged in a dinner with Hamilton, Jefferson, and Madison. In exchange for their agreement to not actively oppose the proposal, Hamilton would support placing the nation's capital in Virginia.
The article points out the importance of compromise in order to solve major problems, but also -- though the author does not state this outright -- that speculators tend to get what they want. Remember that one of the major objectives of nationalization, by which I mean swapping out the Articles of Confederation for the Constitution, was to decrease the risk associated with business speculation. Again, there is nothing new under the sun.
