Hurricane Irene and the Financial Crisis
Two disasters, partially of the government's own making
Watching Gov. Chris Christie of New Jersey and Mayor Michael Bloomberg of New York order businesses to close and citizens to evacuate their homes in advance of Tropical Storm Irene reminded me of the actions taken by President George W. Bush, Treasury Secretary Henry Paulson, and the Federal Reserve during the financial crisis.
The similarities are striking. In both the financial crisis and Irene, the government actions taken were exceptional and involved depriving people of private property without the due process required under the Fifth Amendment.
In the financial crisis, Bush and Paulson seized Fannie Mae and Freddie Mac in what Paulson later described as an ambush. They did in essence the same thing at AIG, without shareholder approval, in what AIG's former chairman Maurice Greenberg, a large shareholder, has called a violation of the law of Delaware, in which AIG was incorporated.
In Irene, the mayor and the governor took away not a company that belonged to shareholders, but rather the use of apartments and houses and commercial properties that had been owned or rented by individuals.
In both the financial crisis and Irene, the justification for these extraordinary actions was the ultimately un-provable contention that without them, things would have been even worse. Paulson wrote that he had "no other choice" to "protect free enterprise capitalism" from the risk of a catastrophic global meltdown. Bloomberg reportedly "decided that the risk of inaction was intolerable," with his defenders evoking New York City underwater in a Katrina-style deadly disaster.
In both the financial crisis and Irene, political party labels were largely irrelevant. The fact that Paulson and Bush were from the putatively pro-free-market Republican Party did not stop them from seizing companies, and the fact that Christie is a Republican and Bloomberg is a Democrat-turned-Republican-turned-independent did not stop them from ordering people out of their homes.
In both cases, the actions were spurred and facilitated by a pliant press. With Irene, the Weather Channel played the role that CNBC did in the financial crisis, the wind-blown reporters in waterfront storm gear standing in for the business reporters reporting from stock-exchange trading floors. Just as Paulson's actions attracted little criticism from major press outlets across the political spectrum, Mayor Bloomberg's shutdown of New York City was hailed, with a news article-valentine in The New York Times describing him as "a decisive crisis manager" and "a reassuring father-figure" who "had done much to repair his reputation for C.E.O.-style leadership."
In both cases, there was a display of faith in central planning as opposed to Hayekian distributed knowledge. Rather than letting shareholders or market forces decide the fate of AIG, Fannie, or Freddie, the government stepped in. And rather than letting individuals decide whether to stay or go ahead of Irene, the government made the decision for them.
In both situations, there is an argument that the government's actions actually made things worse. In the financial crisis, the seizures probably contributed to the sense of crisis and panic and made it harder for other financial institutions to raise capital. Layoffs and the stock market decline both got worse after the AIG and Fannie and Freddie seizures. Bloomberg argues that the evacuations saved lives, and perhaps they did. But there was a large cost to shutting down New York City and the Jersey shore for an entire weekend. Some individuals may have left New York City or the New Jersey coast for other places, such at Vermont or the Catskills, that turned out to be hit even worse by the storm.
In both events, unelected technocrats played a big role. In the financial crisis, it was Ben Bernanke and Timothy Geithner, who stayed on after the Bush administration to serve President Obama. In Irene, it was the meteorologists and the director of the Federal Emergency Management Agency, William Craig Fugate, an Obama appointee whose prior job was as director of the Florida Division of Emergency Management under Florida's Republican governor, Jeb Bush.
In both cases, critics of the government's actions are marginalized in the political and press conversation as a wild-eyed extremist, anarchist, fringe. Yet who were the real destroyers of order here—the skeptics, or those in government who use a predicted emergency to seize property and power, close businesses, or force people from their homes?
Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.
