Dead Pledge

Bailouts and a Balanced Economy: A New History of the American State, 1913 to 1939 traces the bank rescues that angered the public during the 2008 financial crisis back through a century of state support for finance. Its central claim is that such bailouts grew out of a long-running pattern of government backing for the financial sector, particularly for banks that issued home mortgages.

From the Progressive Era through the New Deal, Judge Earl Glock argues, a core aim of American government was to make newer and riskier kinds of bank lending more common by guaranteeing them. When the Great Depression struck, the government honored those earlier promises by pouring billions of dollars into insolvent banks, while also extending aid to a growing share of the banks and financiers in the system. The author contends that the broadest safety net to take shape in the first half of the twentieth century protected banks and lenders, above all those writing long-term mortgages, and that the recent bailouts were the final stage of these earlier reforms.

These guarantees, Glock explains, sprang from a combination of a new ideology and a new coalition of interest groups. The ideology held that the government had a duty to keep all productive sectors in proportion to one another. On this view, the state should act as a pivot, lending support to any sector, such as agriculture, that lagged behind. Advocates warned that without targeted financial help for those sectors, the economy could tip into disequilibrium and then into lopsided expansion, with depression or disaster as the likely result.

Throughout the book, Glock uses this concept of a balanced economy to explain the choices and actions of policymakers during this pivotal era.