A Movement Explained
What does the Tea Party mean?
Apr 2, 2012, Vol. 17, No. 28 • By MATTHEW CONTINETTI
The world came unhinged in the fall of 2008.
The United States had been in recession since the previous December, according to the Bureau of Economic Research, and in March 2008 the Fed had brokered a panicked fire sale of Bear Stearns to JPMorgan Chase. But the real drama did not begin until September, when the government nationalized mortgage giants Fannie Mae and Freddie Mac, Lehman Brothers went bankrupt, the government took over AIG, global credit markets froze, and a run began on money market funds.
To restore calm, President George W. Bush, Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke proposed the $700 billion emergency Troubled Asset Relief Program (TARP) to bail out insolvent financial institutions. TARP failed in the House of Representatives on the first vote, sending markets into a tailspin, but was later passed by both houses of Congress and signed into law by the president in October.
TARP did not end the crisis, however. Global output continued to plunge, contributing to the presidential election of Barack Obama in November. The crash threatened the big three American automobile manufacturers, which lobbied the government for aid. On December 19 President Bush announced that the Treasury would award General Motors and Chrysler $13.4 billion in bridge loans to cross the financial ravine. Throughout all this, the Federal Reserve was massively increasing the money supply in an attempt to sustain liquidity.
Such a flurry of state activity would have been enough to spark a reaction from Americans traditionally suspicious of central government. But the interventions did not stop there. Even before Obama was inaugurated in January 2009 the collective wisdom in Washington held that the way to restore prosperity was a massive stimulus of public spending. So Congress passed the American Recovery and Reinvestment Act, at an eventual price tag of $840 billion, in February. The bill, which included an increased refundable tax credit for working people, showered money on state governments (and the public sector unions that staff them), on welfare and unemployment recipients, and on the Departments of Energy, Education, and Transportation. Then, on February 18, Obama proposed a $275 billion housing bailout to encourage refinancing among homeowners whose mortgages cost more than their homes were worth.
The fact that it was the mortgage plan—rather than the bank or auto bailouts or the stimulus—which provoked the first call for a new American Tea Party has been little remarked upon. But the detail is revealing. On the morning of February 19 CNBC anchor Rick Santelli delivered his famous rant against President Obama’s housing agenda, in which he called for friends of liberty to gather in Chicago in the summer to dump mortgage-backed securities into Lake Michigan. Santelli, in the space of less than five minutes, set the template for the coming populist reaction against the bipartisan, elite policies of tax, spend, bail out, and elect.
That template had two significant features. Santelli’s plea was grounded in American first principles, invoking the founding generation in its reference to the Tea Party and in appealing to the authority of “people like Benjamin Franklin and [Thomas] Jefferson—what we’re doing in this country now is making them roll over in their graves.” Second, Santelli was not arguing simply that the government was spending too much money; his critique had a moral dimension that transcended mere accounting. “The government is promoting bad behavior,” he said. Some people had made mistakes during the height of the boom. Why should the government reward those mistakes by bailing out insolvent enterprises or lavishing money on homeowners who took on more debt than they could handle?
Spending one’s way out of a recession was not only counterintuitive; it was also harmful for one’s descendants, who would foot the bill. Implicit in the critique of bailouts has always been a moral critique of the actions that result in bailouts and the behaviors that are encouraged by them. Intrusive and profligate government doesn’t just harm economies and destroy balance sheets; it erodes character. There’s a reason the term for this is “moral hazard.”