Leland Duvall lived to the grand age of 94, but his death two years ago was untimely because he needed to see yet another of his predictions come true, though it would have given him no pleasure.

That prediction was the disintegration of the credit markets, the panic of Wall Street, the predictable remedy (a massive taxpayer bailout of mortgage companies and a Wall Street brokerage to calm queasy investors) and the cascading bank failures that now are widely expected.


Duvall, a self-educated farm laborer and cotton-mill hand, was a sort of Nostradamus on capitalism except that his forecasts needed no interpretation. Duvall spelled out the future from time to time in columns and editorials in the Arkansas Gazette.

Duvall had consumed every theorist from Adam Smith to Milton Friedman, but he operated from a far more reliable set of economic rules that sprang from his own hardscrabble experiences and observations of the marvels of capitalism and banking. Some were more or less codified in Moreland’s Laws of Human Behavior and Economics, named after the mountain hamlet in Pope County where Duvall was reared and went to school for seven or eight years. (Moreland’s Fifth Law: Profits never reach an optimum level.) They proved to be unerring in predicting the behavior of key players in the economic order.


Duvall believed that the Glass-Steagall Act of 1933, steered through the U.S. Senate by Arkansas’s Joe T. Robinson, was the inspired summit of lawmaking. It reformed the American financial system, established the Federal Deposit Insurance Corp. and imposed strict federal regulation to prevent speculation that would put the assets of bank customers at risk.

Financial institutions thrived with only rare failures from the recovery through 1980, when the politicians embraced a new creed, which was that they had it exactly right in the roaring ’20s. Economic management was a failure and we needed to take the handcuffs off the financial men so that they could help the nation realize the soaring potential of the free market. Over the next 19 years, Democratic and Republican Congresses and presidents dismantled the Glass-Steagall Act, finishing the job in 1999 with the Gramm-Leach Act, which knocked down the wall between commercial and investment banking and gave us the subprime mortgage catastrophe.


Duvall saw every crack in Glass-Steagall differently, as a license for people with plenty of money to do whatever was needed to take more from the pittances of his “garden-variety Americans.” Moreland’s Fifth Law would come into play. Unchecked greed would always prove to be irrational.

After Congress passed the Depository Institutions Deregulation and Monetary Control Act in 1980, which removed the distinctions between commercial banks and thrifts and savings banks, Ronald Reagan’s regulators fanned out to tell savings and loans to throw off their shackles and reach for the American dream. Start investing in commercial paper and corporate bonds and invest their customers’ passbook savings in speculative real estate. Amid the great euphoria that followed, Duvall wrote in 1982 that it would spell the end of the savings and loan industry.

Soon, First South Savings and Loan at Pine Bluff was hit by massive defaults on loans to Dallas high rollers who had packaged exotic projects when the Texas economy was booming. Guaranty Savings and Loan at Harrison put up $22 million to finance a 20-story downtown country club, which got no further than a block-size hole. Every S&L in the state would go under and the story was matched across the country. Some of the greedier operators, like John McCain’s friend and benefactor Charles Keating, went to jail. Eventually, the taxpayers would put up $200 billion to cover the thrifts’ losses.

But the industry, supported by Reagan, lobbied for even more free market and a complete scuttling of Glass-Steagall. Duvall warned that if they succeeded it eventually would produce a cataclysm dwarfing the S&L debacle. The Republican Congress did the trick in 1999 and Bill Clinton signed the law, named after its chief author, Phil Gramm, McCain’s principal economic adviser and the man who this month pronounced the economy healthy and denounced Americans as whiners.


I visited Duvall a few times at his bungalow on Crow Mountain before his death and I asked him if he still harbored those forebodings. Yep, he drawled, it won’t be long.

But, he said, as he had so often written, the government — or that magnificent packhorse, the taxpayer — will answer the call of the financiers and protect the investors but not the millions of suckers who were gulled into the trap. And that’s what happened with Bear Stearns. Fannie Mae and Freddie Mac.

One of the uncodified laws of Moreland is that free markets are good only when assets are rising but when things go bad every capitalist loves a managed economy.

Duvall would agree that the government has to prop up the big mortgage companies to prevent a global collapse of American credit — China might stop bankrolling our wars and debt — but I think he would say that the government should go further and renationalize the Fannie Mae and Freddie Mac. If taxpayers are going to put up $300 billion or so to buy the stock, why not turn them back into federal agencies to serve the housing market and not to enrich private investors?