[30 November 2012]
A Nation of Deadbeats: An Uncommon History of America’s Financial Disasters began as a Facebook post. As Scott Nelson relates, he simply made the observation that the panic of 1873 “resembled” the panic of 2008. The post turned into an op-ed for The Chronicle of Higher Education, and this article, if an article can, went viral. Nelson remembers: “When banks began to call… during that long October of 2008 their biggest question was: is there a book that explains the other financial panics the way that you did in your article?” And now, the answer to that question is yes.
In A Nation of Deadbeats, Nelson goes back to 1792 to examine the United States’ first financial panic and moves forward, discussing each major panic until he reaches the 1920s. He begins, though, with a personal story. Nelson’s father was, for part of his life, a repo man for Woolco’s department store, and as such, his job was to go after people who were behind on their payments, the “deadbeats”. According to Nelson’s father “A deadbeat… was a guy whose mouth wrote a check his ass could not cash.” And this, Nelson relates, is not so very different than the financial panics and crises that have plagued the United States since its inception:
“In a certain sense, the story of my dad, Woolco’s debtors, and the debts he collected is the story of American history. Americans settled this nation by borrowing goods, land, and more abstract representations of those goods—land warrants, deeds, patents, concessions, and equities… when it became clear that Americans were not paying, banks began to doubt wholesalers and called in loans; wholesalers demanded settlement from retailers; retailers sent my dad and thousands like him… to recall some portion of their property. Times got hard.”
Nelson’s storytelling style makes A Nation of Deadbeats a less daunting read than what one might expect from a book that examines over 200 years of financial history. Each chapter is well researched and usually gives almost as much time to people as it does to events. Andrew Jackson is discussed at length, but some of the figures Nelson includes are perhaps less familiar. Anton J. Cermak’s story, for example, crosses multiple chapters—from his childhood in a village outside of Prague in the 1870s through his hoodlum days to his stint as mayor of Chicago in the 1930s.
And while each chapter looks at a different panic and each panic is linked to a different entity—cotton, sugar, railroads, etc.—the similarities between most panics (including the one that began in 2008) are clear and alarming. From the stimuli to the banking practices to the political rhetoric—which presidential candidate promised “to end the corruption in Washington, improve… trade, and bring prosperity back to America”? Probably more than one (although in this case, Nelson is referencing Andrew Jackson).
Another recurring thought: “Would Americans ever be trusted again?” As early as 1843, American debt to foreign nations was so great that “American lawmakers discussed their fear that foreign powers would send gunboats to invade Mississippi to recover the unpaid debts of American states.”
Nelson sums many of the similarities up nicely in “Conclusions, Conclusions”: “the American asset bubble of 1873 proved yet again the dangers of debt obligations built on unproven or invented assets: whether personal notes in 1792, bills of exchange in 1819, bank drafts in 1837, railway mortgages in 1857, or second- and third-mortgage railway bonds in 1873. Symbolic doubt emerged when lenders could not distinguish golden opportunities from gilt-edged monstrosities”.
Strangely, while many seem to liken America’s current (or recent) economic state to the Great Depression, Nelson focuses on the differences. He states, “In every other major panic described here, American consumers were borrowers. Sometimes they borrowed for planting wheat, sometimes for buying monkey jackets, sometimes for purchasing slaves, sometimes for the prospects of sod settlements on the plains of the Missouri River. But in the 1920s, Americans were lenders, and as new lenders they were pretty bad at it.”
What are Americans (or American banks) good at: “making nonpaying American assets look attractive… For more than a century these banks had learned to package loans that were as valueless as the accordion file of bad debts in my father’s Dodge Dart.”
Nelson has some pretty harsh words for American banks and the American people as well as other economists and historians that write about America’s financial history. He notes that many books on financial history tend “to focus on big personalities or New York institutions” or “analyze the data from thirty-five thousand feet”. He concludes:
“Seldom did these accounts reflect the reality my dad wrestled with every day: how optimistic assumptions had again and again led Americans to buy millions of shiny new things, and how significant factors outside the banking narrative, such as high commodity prices (oil in Dad’s day) and lost jobs (in ours), had turned dreamers into defaulters. In fact the only panic in which American consumer debt did not figure much was the Great Depression of the 1930s, the only crash that most economists understand.”
As the title implies, A Nation of Deadbeats isn’t a warm, fuzzy kind of read. And with a section that opens “At the risk of further irritating my colleagues”, clearly Nelson expects some to criticize his approach. But for Americans who are trying to piece together the path that led us to this sad economic place, it’s a must read.