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08/11/2006

Gerald Ford, Part III

Time to wrap up our series on the presidency of Gerald R. Ford,
from an economic standpoint, with the tale of New York City
and its dire financial crisis.

As I noted earlier, Ford was a veto machine, 66 in all and most of
which involved rejecting Congress’s requests for more spending.
So as a fiscal conservative it shouldn’t be surprising that when
New York City encountered severe budget problems, Ford was
less than sympathetic. The president had earlier vowed “to veto
any bill that has as its purpose a federal bailout” and New York
fit the bill.

For much of 1975 New York City stood at the brink of financial
collapse. The cost of its social programs was overwhelming and
there was zero budget discipline, though in this regard New York
was hardly alone as other big urban areas faced a similar plight.

Default seemed a certainty and rural America took satisfaction in
the idea the “chickens had come home to roost” when it came to
big city profligacy. Gerald Ford assumed the role of Middle
America’s president. After all this is the man who once said “If
the government is big enough to give you everything you want, it
is big enough to take away everything you have.”

From “The Century”:

“The decision not to aid New York was one in which Ford had
properly gauged the national mood: Many Americans were
gleeful to see the nation’s premier metropolis in trouble, for they
had come to see the city in general (and New York in particular)
as a symbol of excess and waste, a monument to failure. And
they had declared their new loyalties with their feet, moving
away in large numbers from the Northeast, which most
represented this rusty, discredited urban view of the world, and
toward the ‘Sun Belt’ states of the South and West.”

While local officials scurried for a solution, Ford promised to
veto a bailout of the Big Apple. It was the finality of his
statement, though, that convinced the New York Daily News to
plaster this famous headline across its front page:

“FORD TO CITY: DROP DEAD.”

Ford simply saw his move as being the right thing to do and
something that would encourage New York to straighten out its
books.

But while reaction was positive in the heartland, as time went on
others saw problems in permitting New York to collapse.
Former New York governor and now vice president, Nelson
Rockefeller, openly suggested the federal government might
have to step in. Treasury Secretary William Simon echoed the
sentiment.

From “The Presidents”:

“Ford held to his stern justification that he was forcing New
York to restore its own fiscal viability, but at the same time, his
retreat had become inevitable. Within the city, frantic
negotiations took place involving all parties, including banks that
had funded the city’s short-term securities. Under the pressure,
all interested parties came together during additional weeks of
negotiations. Drastic reductions were made in the city’s work
force. Bankers restructured bond issues. The new Municipal
Assistance Corporation was established to sell securities. Union
pension funds were committed to their purchase. One near
disaster after another was averted in a series of cliff-hanger
scenarios.

“Finally, with the city seemingly acting to repair the damage and
the broader consequences of a default becoming clearer, Ford
changed his stance when he met the press on 26 November. ‘I
have, quite frankly,’ he announced, ‘been surprised that they
have come as far as they have.’ Ford then asked Congress to
approve federal loans to the city on a seasonal basis through 30
June 1978. He covered his own retreat by emphasizing that New
York had ‘bailed itself out.’ Finally, by a narrow margin in the
House, Congress approved Ford’s request for a seasonal
financing act to provide up to $2.3 billion for short-term loans
during the next three years at 1 percent above the federal cost of
money. To further fortify the city against default, in case that
assistance failed to work additional legislation was enacted to
facilitate municipal bankruptcy proceedings so that New York
and other cities could adjust repayment of their debts. Ford’s
position, combined with local and federal measures, induced
some painful cutbacks but did start the process of rehabilitating
New York’s finances.”

New York was saved! And as I noted in an earlier piece, by
1976 the U.S. economy was beginning to turn around as inflation
eased. Ford continued to hammer away at his message that a
variety of social programs needed to be paired back, which he
did by combining 59 of them into four block grants, and while
he proposed catastrophic health insurance for everyone covered
by Medicare, he ruled out a comprehensive national health plan.

Early in 1976 a poll found overwhelmingly Americans thought
Gerald Ford was “a nice guy,” but by a big margin they had also
concluded “he does not seem to be very smart about the issues
the country is facing.” [“The Growth of the American Republic”]

Ford also filled you with the sense he couldn’t be taken
seriously. With his well-documented pratfalls, he was viewed as
“a joke” in some quarters. “He fills the mind with the sense of
how ordinary he is and how vulnerable,” wrote Murray Kempton
in Harper’s. Ford’s own pollster, Robert Teeter, “found that
when asked what the president had done that was particularly
impressive, 61 percent replied, ‘Nothing,’ which is exactly what
41 percent said when asked what he had done that they did not
like. Advised Teeter, ‘There is no clear perception of his
presidency, of his goals, of where he is going.” [“The
Presidents”]

Nonetheless, after trailing Democratic nominee Jimmy Carter by
as much as 56 to 33 percent following the Democratic
Convention, Gerald Ford fought back, only to narrowly lose the
election in the fall, 50 to 48 percent and just 297 to 240 in the
Electoral College. Without a doubt, the pardon of Richard Nixon
was the difference-maker.

Writing these pieces the past few weeks, though, I’ve wondered
how Ford would have reacted to the scandals in the corporate
boardroom, including the latest on the egregious practice of
backdating stock options. Not real well, we can assume. And a
belated Happy Birthday, Mr. President ..Ford turned 93 on July
14.

Sources:

“The Oxford Companion to United States History,” edited by
Paul S. Boyer
“The Presidents,” edited by Henry F. Graff
“The Century,” Peter Jennings and Todd Brewster
“The Growth of the American Republic,” Samuel Eliot Morison,
Henry Steele Commager, William E. Leuchtenburg
“America: A Narrative History,” George Brown Tindall and
David E. Shi

Wall Street History returns next week.

Brian Trumbore



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Wall Street History

08/11/2006

Gerald Ford, Part III

Time to wrap up our series on the presidency of Gerald R. Ford,
from an economic standpoint, with the tale of New York City
and its dire financial crisis.

As I noted earlier, Ford was a veto machine, 66 in all and most of
which involved rejecting Congress’s requests for more spending.
So as a fiscal conservative it shouldn’t be surprising that when
New York City encountered severe budget problems, Ford was
less than sympathetic. The president had earlier vowed “to veto
any bill that has as its purpose a federal bailout” and New York
fit the bill.

For much of 1975 New York City stood at the brink of financial
collapse. The cost of its social programs was overwhelming and
there was zero budget discipline, though in this regard New York
was hardly alone as other big urban areas faced a similar plight.

Default seemed a certainty and rural America took satisfaction in
the idea the “chickens had come home to roost” when it came to
big city profligacy. Gerald Ford assumed the role of Middle
America’s president. After all this is the man who once said “If
the government is big enough to give you everything you want, it
is big enough to take away everything you have.”

From “The Century”:

“The decision not to aid New York was one in which Ford had
properly gauged the national mood: Many Americans were
gleeful to see the nation’s premier metropolis in trouble, for they
had come to see the city in general (and New York in particular)
as a symbol of excess and waste, a monument to failure. And
they had declared their new loyalties with their feet, moving
away in large numbers from the Northeast, which most
represented this rusty, discredited urban view of the world, and
toward the ‘Sun Belt’ states of the South and West.”

While local officials scurried for a solution, Ford promised to
veto a bailout of the Big Apple. It was the finality of his
statement, though, that convinced the New York Daily News to
plaster this famous headline across its front page:

“FORD TO CITY: DROP DEAD.”

Ford simply saw his move as being the right thing to do and
something that would encourage New York to straighten out its
books.

But while reaction was positive in the heartland, as time went on
others saw problems in permitting New York to collapse.
Former New York governor and now vice president, Nelson
Rockefeller, openly suggested the federal government might
have to step in. Treasury Secretary William Simon echoed the
sentiment.

From “The Presidents”:

“Ford held to his stern justification that he was forcing New
York to restore its own fiscal viability, but at the same time, his
retreat had become inevitable. Within the city, frantic
negotiations took place involving all parties, including banks that
had funded the city’s short-term securities. Under the pressure,
all interested parties came together during additional weeks of
negotiations. Drastic reductions were made in the city’s work
force. Bankers restructured bond issues. The new Municipal
Assistance Corporation was established to sell securities. Union
pension funds were committed to their purchase. One near
disaster after another was averted in a series of cliff-hanger
scenarios.

“Finally, with the city seemingly acting to repair the damage and
the broader consequences of a default becoming clearer, Ford
changed his stance when he met the press on 26 November. ‘I
have, quite frankly,’ he announced, ‘been surprised that they
have come as far as they have.’ Ford then asked Congress to
approve federal loans to the city on a seasonal basis through 30
June 1978. He covered his own retreat by emphasizing that New
York had ‘bailed itself out.’ Finally, by a narrow margin in the
House, Congress approved Ford’s request for a seasonal
financing act to provide up to $2.3 billion for short-term loans
during the next three years at 1 percent above the federal cost of
money. To further fortify the city against default, in case that
assistance failed to work additional legislation was enacted to
facilitate municipal bankruptcy proceedings so that New York
and other cities could adjust repayment of their debts. Ford’s
position, combined with local and federal measures, induced
some painful cutbacks but did start the process of rehabilitating
New York’s finances.”

New York was saved! And as I noted in an earlier piece, by
1976 the U.S. economy was beginning to turn around as inflation
eased. Ford continued to hammer away at his message that a
variety of social programs needed to be paired back, which he
did by combining 59 of them into four block grants, and while
he proposed catastrophic health insurance for everyone covered
by Medicare, he ruled out a comprehensive national health plan.

Early in 1976 a poll found overwhelmingly Americans thought
Gerald Ford was “a nice guy,” but by a big margin they had also
concluded “he does not seem to be very smart about the issues
the country is facing.” [“The Growth of the American Republic”]

Ford also filled you with the sense he couldn’t be taken
seriously. With his well-documented pratfalls, he was viewed as
“a joke” in some quarters. “He fills the mind with the sense of
how ordinary he is and how vulnerable,” wrote Murray Kempton
in Harper’s. Ford’s own pollster, Robert Teeter, “found that
when asked what the president had done that was particularly
impressive, 61 percent replied, ‘Nothing,’ which is exactly what
41 percent said when asked what he had done that they did not
like. Advised Teeter, ‘There is no clear perception of his
presidency, of his goals, of where he is going.” [“The
Presidents”]

Nonetheless, after trailing Democratic nominee Jimmy Carter by
as much as 56 to 33 percent following the Democratic
Convention, Gerald Ford fought back, only to narrowly lose the
election in the fall, 50 to 48 percent and just 297 to 240 in the
Electoral College. Without a doubt, the pardon of Richard Nixon
was the difference-maker.

Writing these pieces the past few weeks, though, I’ve wondered
how Ford would have reacted to the scandals in the corporate
boardroom, including the latest on the egregious practice of
backdating stock options. Not real well, we can assume. And a
belated Happy Birthday, Mr. President ..Ford turned 93 on July
14.

Sources:

“The Oxford Companion to United States History,” edited by
Paul S. Boyer
“The Presidents,” edited by Henry F. Graff
“The Century,” Peter Jennings and Todd Brewster
“The Growth of the American Republic,” Samuel Eliot Morison,
Henry Steele Commager, William E. Leuchtenburg
“America: A Narrative History,” George Brown Tindall and
David E. Shi

Wall Street History returns next week.

Brian Trumbore