Lefty vs. Lefty: Was Economic Crash Reagan’s Fault?

Nobel Prize winning economist Paul Krugman said yes it was, in a column called Reagan Did It:

For the more one looks into the origins of the current disaster, the
clearer it becomes that the key wrong turn — the turn that made crisis
inevitable — took place in the early 1980s, during the Reagan years… We weren’t always a nation of big debts and low savings: in the
1970s Americans saved almost 10 percent of their income, slightly more
than in the 1960s. It was only after the Reagan deregulation that
thrift gradually disappeared from the American way of life, culminating
in the near-zero savings rate that prevailed on the eve of the great
crisis. Household debt was only 60 percent of income when Reagan took
office, about the same as it was during the Kennedy administration. By
2007 it was up to 119 percent.

All this, we were assured, was a
good thing: sure, Americans were piling up debt, and they weren’t
putting aside any of their income, but their finances looked fine once
you took into account the rising values of their houses and their stock
portfolios. Oops.

Old-school Robert Scheer, in a column called Reagan Didn't Do It, says no — Clinton-era hacks did it:

Ronald Reagan’s signing off on
legislation easing mortgage requirements back in 1982 pales in
comparison to the damage wrought 15 years later by a cabal of powerful
Democrats and Republicans who enabled the wave of newfangled financial
gimmicks that resulted in the economic collapse.

Reagan didn’t do it, but Clinton-era
Treasury Secretaries Robert Rubin and Lawrence Summers, now a top
economic adviser in the Obama White House, did. They, along with
then-Fed Chairman Alan Greenspan and Republican congressional leaders
James Leach and Phil Gramm, blocked any effective regulation of the
over-the-counter derivatives that turned into the toxic assets now
being paid for with tax dollars.

Reagan signed legislation making it
easier for people to obtain mortgages with lower down payments, but as
long as the banks that made those loans expected to have to carry them
for 30 years they did the due diligence needed to qualify creditworthy
applicants. The problem occurred only when that mortgage debt could be
aggregated and sold as securities to others in an unregulated market.

The growth in that unregulated OTC market
alarmed Brooksley Born, the Clinton-appointed head of the Commodity
Futures Trading Commission, and she dared propose that her agency
regulate that market. The destruction of the government career of the
heroic and prescient Born was accomplished when the wrath of the old
boys club descended upon her. All five of the above mentioned men
sprang into action, condemning Born’s proposals as threatening the
“legal certainty” of the OTC market and the world’s financial

They won the day with the passage of the
Commodity Futures Modernization Act, which put the OTC derivatives
beyond the reach of any government agency or existing law. It was a
license to steal, and that is just what occurred. Between 1998 and
2008, the notational value of the OTC derivatives market grew from $72
trillion to a whopping $684 trillion. That is the iceberg that our ship
of state has encountered, and it began to form on Bill Clinton’s watch,
not Reagan’s.

Hmmmm…think Scheer may have won this round. Fascinating to see two men who despise Reagan  bicker over his legacy. Was he not always so bad? Be interesting to hear more from Brooksley Born…

[pic from the Reagan library]


Published by Kit Stolz

I'm a freelance reporter and writer based in Ventura County.

One thought on “Lefty vs. Lefty: Was Economic Crash Reagan’s Fault?

  1. Both the Reagan and Clinton administrations were equally responsible for the disaster, though in different ways. Putting together rapacious capitalism (Reagan) with casino capitalism (Clinton) is how we got the perfect storm.


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