The noted historian and activist Howard Zinn died this past week.  As a student at Boston University during the latter years of the Vietnam era, I took Professor Zinn’s now-famed political science course.  One of his oft-quoted lines, spoken then in the context of the anti-war movement, seems to apply now to the continued efforts by federal officials to build stability in the nation’s financial system.
 
Zinn suggested that if you know history, then you might not be so easily fooled by the government when it tells you that you must do something for this or that reason. He called history a protective armor against being misled.

Those words resonate today when you tune into the emotions of an outraged public who are frustrated with the consequences of the government’s bailout of big banks and Wall Street.  Many Americans feel fooled and misled. Maybe it’s because there was very little history to fall back on.
 
Granted, no one would ever accuse the ultra-liberal Zinn of spending too much time pondering the banking world. But now some credible experts are making very Zinn-like observations on the downsides of what seemed at the time to be necessary steps in 2008.

No less than former Fed chief Paul Volcker, a trusted adviser to President Obama, wrote in the Sunday New York Times this weekend that concern persists that there is a “residue of moral hazard” from the efforts by the Fed, the Treasury and other governments to rescues large, failing institutions.

“As things stand, the consequence will be to enhance incentives to risk-taking and leverage, with the implication of an even more fragile financial system,” Volcker wrote. “We need to find more effective fail-safe arrangements.”

Nobel Prize-winning economist Paul Krugman last week seemed to sound an alarm when saying that without adequate financial reform we may be headed down a familiar risky path more eagerly than anyone would expect in a period immediately following economic calamity. He warned that Congress’ currently proposed reform language, if enacted, would make it “all too easy for those rules to get weakened to the point where they wouldn’t do the job. A few tweaks in the fine print and banks would be free to play the same game all over again.”

And in a report released on Sunday by the government’s own independent watchdog at the Treasury Department asserts that the government’s response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," wrote Neil Barofsky, the special inspector general for the troubled asset relief program, or TARP.

Interesting. Barofsky’s line echoes another famous Zinn quote: Even if you win the rat race, you’re still a rat.