Creature From Jekyll Island by G. Edward

viewed as the national champion of economic conservatism, praised the action. From aboard Air Force One on the way to California, the President said: "It was a thing that we should do and we did it. It was in the best interest of all concerned."1

The Reagan endorsement brought into focus one of the most amazing phenomena of the 20th century: the process by which America has moved to the Left toward statism while marching behind the political banner of those who speak the language of opposing statism. William Greider, a former writer for the liberal Washington Post and The Rolling Stone, complains: The nationalization of Continental was, in fact, a quintessential act of modem liberalism—the state intervening in behalf of private interests and a broad public purpose. In this supposedly conservative era, federal authorities were setting aside the harsh verdict of market competition (and grossly expanding their own involvement in the private economy)....

In the past, conservative scholars and pundits had objected loudlyat any federal intervention in the private economy, particularlyemergency assistance for failing companies. Now, they hardly seemedto notice. Perhaps they would have been more vocal if the deed hadbeen done by someone other than the conservative champion, RonaldReagan.2

Four years after the bailout of Continental Illinois, the same play was used in the rescue of BankOklahoma, which was a bank 1. "Reagan Calls Rescue of Bank No Bailout," New York Times, July 29,1984.

2. Greider, p. 631.

PROTECTORS OF THE PUBLIC

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holding company. The FDIC pumped $130 million into its main banking unit and took warrants for 55% ownership. The pattern had been set. By accepting stock in a failing bank in return for bailing it out, the government had devised an ingenious way to nationalize banks without calling it that. Issuing stock sounds like a business transaction in the private sector. And the public didn't seem to notice the reality that Uncle Sam was going into banking.

SECOND REASON TO ABOLISH THE FEDERAL RESERVE

A sober evaluation of this long and continuing record leads to the second reason for abolishing the Federal Reserve System: Far from being a protector of the public, it is a cartel operating against the public interest.

SUMMARY

The game called bailout is not a whimsical figment of the imagination, it is for real. Here are some of the big games of the season and their final scores.

In 1970, Penn Central railroad became bankrupt. The banks which loaned the money had taken over its board of directors and had driven it further into the hole, all the while extending bigger and bigger loans to cover the losses. Directors concealed reality from the stockholders and made additional loans so the company could pay dividends to keep up the false front. During this time, the directors and their banks unloaded their stock at unrealistically high prices. When the truth became public, the stockholders were left holding the empty bag. The bailout, which was engineered by the Federal Reserve, involved government subsidies to other banks to grant additional loans. Then Congress was told that the collapse of Penn Central would be devastating to the public interest.

Congress responded by granting $125 million in loan guarantees so that banks would not be at risk. The railroad eventually failed anyway, but the bank loans were covered. Penn Central was nationalized into AMTRAK and continues to operate at a loss.

In 1970, as Lockheed faced bankruptcy, Congress heard

essentially the same story. Thousands would be unemployed, subcontractors would go out of business, and the public would suffer greatly. So Congress agreed to guarantee $250 million in new loans, which put Lockheed 60% deeper into debt than before. Now that government was guaranteeing the loans, it had to make sure Lockheed became profitable. This was accomplished by granting 64 THE CREATURE FROM JEKYLL ISLAND

lucrative defense contracts at non-competitive bids. The banks were paid back.