Favorite

The prophet Duvall 

Leland Duvall lived to the grand age of 94, but his death two years ago was untimely because he needed to see yet another of his predictions come true, though it would have given him no pleasure.

That prediction was the disintegration of the credit markets, the panic of Wall Street, the predictable remedy (a massive taxpayer bailout of mortgage companies and a Wall Street brokerage to calm queasy investors) and the cascading bank failures that now are widely expected.

Duvall, a self-educated farm laborer and cotton-mill hand, was a sort of Nostradamus on capitalism except that his forecasts needed no interpretation. Duvall spelled out the future from time to time in columns and editorials in the Arkansas Gazette.

Duvall had consumed every theorist from Adam Smith to Milton Friedman, but he operated from a far more reliable set of economic rules that sprang from his own hardscrabble experiences and observations of the marvels of capitalism and banking. Some were more or less codified in Moreland's Laws of Human Behavior and Economics, named after the mountain hamlet in Pope County where Duvall was reared and went to school for seven or eight years. (Moreland's Fifth Law: Profits never reach an optimum level.) They proved to be unerring in predicting the behavior of key players in the economic order.

Duvall believed that the Glass-Steagall Act of 1933, steered through the U.S. Senate by Arkansas's Joe T. Robinson, was the inspired summit of lawmaking. It reformed the American financial system, established the Federal Deposit Insurance Corp. and imposed strict federal regulation to prevent speculation that would put the assets of bank customers at risk.

Financial institutions thrived with only rare failures from the recovery through 1980, when the politicians embraced a new creed, which was that they had it exactly right in the roaring '20s. Economic management was a failure and we needed to take the handcuffs off the financial men so that they could help the nation realize the soaring potential of the free market. Over the next 19 years, Democratic and Republican Congresses and presidents dismantled the Glass-Steagall Act, finishing the job in 1999 with the Gramm-Leach Act, which knocked down the wall between commercial and investment banking and gave us the subprime mortgage catastrophe.

Duvall saw every crack in Glass-Steagall differently, as a license for people with plenty of money to do whatever was needed to take more from the pittances of his “garden-variety Americans.” Moreland's Fifth Law would come into play. Unchecked greed would always prove to be irrational.

After Congress passed the Depository Institutions Deregulation and Monetary Control Act in 1980, which removed the distinctions between commercial banks and thrifts and savings banks, Ronald Reagan's regulators fanned out to tell savings and loans to throw off their shackles and reach for the American dream. Start investing in commercial paper and corporate bonds and invest their customers' passbook savings in speculative real estate. Amid the great euphoria that followed, Duvall wrote in 1982 that it would spell the end of the savings and loan industry.

Soon, First South Savings and Loan at Pine Bluff was hit by massive defaults on loans to Dallas high rollers who had packaged exotic projects when the Texas economy was booming. Guaranty Savings and Loan at Harrison put up $22 million to finance a 20-story downtown country club, which got no further than a block-size hole. Every S&L in the state would go under and the story was matched across the country. Some of the greedier operators, like John McCain's friend and benefactor Charles Keating, went to jail. Eventually, the taxpayers would put up $200 billion to cover the thrifts' losses.

But the industry, supported by Reagan, lobbied for even more free market and a complete scuttling of Glass-Steagall. Duvall warned that if they succeeded it eventually would produce a cataclysm dwarfing the S&L debacle. The Republican Congress did the trick in 1999 and Bill Clinton signed the law, named after its chief author, Phil Gramm, McCain's principal economic adviser and the man who this month pronounced the economy healthy and denounced Americans as whiners.

I visited Duvall a few times at his bungalow on Crow Mountain before his death and I asked him if he still harbored those forebodings. Yep, he drawled, it won't be long.

But, he said, as he had so often written, the government — or that magnificent packhorse, the taxpayer — will answer the call of the financiers and protect the investors but not the millions of suckers who were gulled into the trap. And that's what happened with Bear Stearns. Fannie Mae and Freddie Mac.

One of the uncodified laws of Moreland is that free markets are good only when assets are rising but when things go bad every capitalist loves a managed economy.

Duvall would agree that the government has to prop up the big mortgage companies to prevent a global collapse of American credit — China might stop bankrolling our wars and debt — but I think he would say that the government should go further and renationalize the Fannie Mae and Freddie Mac. If taxpayers are going to put up $300 billion or so to buy the stock, why not turn them back into federal agencies to serve the housing market and not to enrich private investors?

 

Favorite

Comments

Subscribe to this thread:

Add a comment

More by Ernest Dumas

  • Attack the poor

    If there is a unifying motif to the labors of Congress and the Arkansas legislature this spring it is to make life harder and existence more intolerable for the poor.
    • Mar 23, 2017
  • Nixon's EPA

    Poor Richard Nixon would be so hurt, and baffled. He went to his grave knowing that while his historical reputation was in tatters owing to the deceptions and corruption of Watergate, he at least could lay claim to a few of the great advances in human rights in Western history.
    • Mar 16, 2017
  • Trumpcare

    Ignorance may not exactly be bliss, President Trump and a lot of other politicians are discovering, but it is a good operating model as long as wisdom doesn't rear its ugly head.
    • Mar 9, 2017
  • More »

Readers also liked…

  • Guns, God and gays

    Many more mass shootings like the one last week in Roseburg, Ore., will stain the future and no law will pass that might reduce the carnage. That is not a prediction but a fact of life that is immune even to Hillary Clinton.
    • Oct 8, 2015
  • AEC dumps ALEC

    No matter which side of the battle over global warming you're on, that was blockbuster news last week. No, not the signing of the climate-change treaty that commits all of Earth's 195 nations to lowering their greenhouse-gas emissions and slowing the heating of the planet, but American Electric Power's announcement that it would no longer underwrite efforts to block renewable energy or federal smokestack controls in the United States.
    • Dec 17, 2015
  • No tax help for Trump

    The big conundrum is supposed to be why Donald Trump does so well among white working-class people, particularly men, who do not have a college education.
    • Aug 11, 2016

Most Shared

Latest in Ernest Dumas

  • Attack the poor

    If there is a unifying motif to the labors of Congress and the Arkansas legislature this spring it is to make life harder and existence more intolerable for the poor.
    • Mar 23, 2017
  • Nixon's EPA

    Poor Richard Nixon would be so hurt, and baffled. He went to his grave knowing that while his historical reputation was in tatters owing to the deceptions and corruption of Watergate, he at least could lay claim to a few of the great advances in human rights in Western history.
    • Mar 16, 2017
  • Trumpcare

    Ignorance may not exactly be bliss, President Trump and a lot of other politicians are discovering, but it is a good operating model as long as wisdom doesn't rear its ugly head.
    • Mar 9, 2017
  • More »

Visit Arkansas

Forest bathing is the Next Big Thing

Forest bathing is the Next Big Thing

Arkansas is the perfect place to try out this new health trend. Read all about the what, why, where and how here.

Event Calendar

« »

March

S M T W T F S
  1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31  

Most Viewed

  • Worse than N.C.'s bathroom bill

    SB 774 extends birth certificate requirement to bathrooms in all public facilities, and that's an original birth certificate, too.
  • Don't cry for Robert E. Lee

    Congratulations are in order for Governor Hutchinson. He decided this year to devote the weight of his office to end the state's embarrassing dual holiday for slavery defender Robert E. Lee and civil rights hero Martin Luther King Jr.
  • Attack the poor

    If there is a unifying motif to the labors of Congress and the Arkansas legislature this spring it is to make life harder and existence more intolerable for the poor.

Most Recent Comments

  • Re: City Board discovers LRSD

    • You reap what you sow, the seeds were planted when the Max Brantley's of LR,…

    • on March 20, 2017
  • Re: More on pits

    • Diane, as noted above, this is a *column* not a news piece. So yes, it's…

    • on March 20, 2017
  • Re: More on pits

    • It's just amazing being told by a college professor that an editorial column is, um,…

    • on March 20, 2017
 

© 2017 Arkansas Times | 201 East Markham, Suite 200, Little Rock, AR 72201
Powered by Foundation