The announcement by Citicorp, Chase Manhattan Bank, BankAmerica, and others that they were increasing their loan reserves to cover potential losses on their Third World debts was a welcome shower of sanity on the nation's financial markets.
It was also the final vindication of those brave souls, liberal and conservative, Republican and Democrat, who four years ago bucked the president, congressional leadership, and the entire U.S. financial establishment, not to mention the major national media, and voted against the $8.4 billion of additional funds to the International Monetary Fund to keep those debts "serviced," in return for the IMF's imposing on these nations severe austerity programs.
This losing opposition was full of "strange political bedfellows," like Phil Crane and John Conyers, Jim Courter and George Crockett, Bill Dannemeyer and Tom Daschle, Jack Kemp and Ron Dellums, Newt Gingrich and Henry Gonzalez, Patsy Schroeder and Mark Siljander, George Miller and Connie Mack.
Those who opposed this "big bank bailout" argued that it would merely reward the banks for having made bad loans and drive the debtor nations still further into debt just to service the debt. Since those nation were some of our biggest export markets, keeping those debts "serviced" and rising would merely delay their ability to grow and to buy our products.
One of the nation's leading monetary economists, the late Robert Weintraub, argued that letting the banks and their debtors work this problem out together, without either government interference or subsidy, would produce a better result.
But Weintraub and his fellow free-market economists were branded as "obstructionist" to a measure about which President Reagan said, "No legislation before Congress is more important to a healthy world economy."
Secretary of State George Shultz and Don Regan, then treasury secretary, in a letter to Congress, warned, "the jobs of millions of Americans, the health of our banking system, and the prospects for a sustained U.S. economic recovery all depend on the IMF's success."
Their sentiments were endorsed and elaborated on by the New York Times, the Washington Post, the major networks, and virtually all of the leadership of both parties in Congress.
Impact on jobs
Against this phalanx of power, a few brave congressmen raised their voices in opposition, and none was more brave nor more prescient than a freshman Democratic representative from West Virginia, Alan B. Mollohan, who warned on the House floor on August 3, 1983:
The IMF quota increase may well have negative impact on American jobs, because the IMF imposes severe austerity measures on developing countries, causing those countries to decrease their demand for American goods.
Mollohan had it right: Most economists now agree that half of our trade deficit today is the direct result of IMF-imposed conditions that forced the debtor
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