You are here

FDR on FDIC

Title

FDR on FDIC

Robert Samuelson’s column (April 8, 2012) discussing President Franklin Roosevelt’s reservations about the longer term implications of Social Security should not be surprising. In 1932, FDR ran as the more market-oriented candidate against interventionist Herbert Hoover. FDR was also reluctant to sign legislation creating the Federal Deposit Insurance Corporation legislation, stating in 1932: “It would lead to laxity in bank management and carelessness on the part of both banker and depositor. I believe that it would be an impossible drain on the Federal Treasury to make good any such guarantee.”

Today, that moral hazard problem has metastasized into a government safety that extends to massive corporations and large institutions -- crop insurance for farmers, stimulus and bailout funds for corporations, pension guarantees, and so on.

Now that system is collapsing. It will not be easy to move from a politicized economy to market discipline, but the fact that corporate America has largely moved from defined benefit to defined contribution pension plans illustrates the robustness of the market to adjust. Hopefully, those such as Paul Ryan who recognize this fact will gain the audience within Congress and the administration to achieve the reforms that will be necessary.