6/18/09

Reagan Did It

As I've pointed out to my friends at Lucianne.com many many times, Republican political and economic philosophy was a train wreck in slow motion. There are many facets to Republican errors. Their "culture war" was despicable tapping the least common denominator of our national population to leverage bigotry, backwardness and resentments dating back to before the Civil War.

But it is in their economic philosophy that we see the roots of America's current economic crisis. Paul Krugman at the New York Times tells you why:

Reagan Did It
By PAUL KRUGMAN
Published: May 31, 2009
New York Times

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression.
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.

Attacks on Reaganomics usually focus on rising inequality and fiscal irresponsibility. Indeed, Reagan ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains. He also broke with longstanding rules of fiscal prudence.

On the latter point: traditionally, the U.S. government ran significant budget deficits only in times of war or economic emergency. Federal debt as a percentage of G.D.P. fell steadily from the end of World War II until 1980. But indebtedness began rising under Reagan; it fell again in the Clinton years, but resumed its rise under the Bush administration, leaving us ill prepared for the emergency now upon us.

The increase in public debt was, however, dwarfed by the rise in private debt, made possible by financial deregulation. The change in America’s financial rules was Reagan’s biggest legacy. And it’s the gift that keeps on taking.

The immediate effect of Garn-St. Germain, as I said, was to turn the thrifts from a problem into a catastrophe. The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money.

But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.
These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.

Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior.

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.
Now, the proximate causes of today’s economic crisis lie in events that took place long after Reagan left office — in the global savings glut created by surpluses in China and elsewhere, and in the giant housing bubble that savings glut helped inflate.

But it was the explosion of debt over the previous quarter-century that made the U.S. economy so vulnerable. Overstretched borrowers were bound to start defaulting in large numbers once the housing bubble burst and unemployment began to rise.

These defaults in turn wreaked havoc with a financial system that — also mainly thanks to Reagan-era deregulation — took on too much risk with too little capital.
There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it.

18 comments:

Daisy said...

Things are in a mess for sure. It is going to take quite a lot to make any big improvements.

Hope you have a good weekend, Ghost.

Ghost Dansing said...

thanks for dropping by Daisy.... always nice to see you.....

g-man said...

Just how old are you?

Your music speaks VOLUMES...G

Thanks for the thought Ghost...

Ghost Dansing said...

too young to smoke G-man..... thanks for dropping by..... have a nice wedding.

Mama Zen said...

Outstanding post!

Ghost Dansing said...

thanks for dropping by Mama Zen....

K.Lawson Gilbert said...

Lot's of food for thought here, Ghost. I am so in the fog about global and US economy - I just don't get it. But, you have made sense here. Thanks for a great post.

Ghost Dansing said...

hi K.Lawson Gilbert. so glad you stopped by to read the article. later....

christopher said...

Ghost, just 'cause...I see you do from time to time gather another article and post it... and it looks like I would see more of you if I went to Lucianne.com

Ghost Dansing said...

thanks for dropping by Christopher.... that's a great point. i'll have to go to Lucianne and see what kinds of rightist stuff Lucianne Goldberg has been posting these days.

i was pointing out many of the problems with the Republican Party on Lucianne.com for 2-3 years back around 2000-2003 timeframe, like their fascist dispostion, well before the 2004 timeframe when they were still winning elections.

Lucianne doesn't actually tolerate dissent.... it is primarily a Republican propaganda blog made to appear as if there are commenters that agree with the Republican Party.

It is actually quite closed. I've been on a waiting list to rejoin the posters there for about 4-5 years.

Of course their reason for banning me 4-5 years ago was that i had not obeyed some rule.... which was nonsense. Their goal was not debate or discussion, but message purity.

They closed-off their registration for new commenters a long long time ago.

Lucianne was just one of many rightist blogs in the blogosphere, some actually taking money from Pajamas Media, that was essentially an internet propaganda arm for "movement conservatives" of the Republican Party.

they have fallen on hard times.

TechnoBabe said...

Ghost Dansing, you rock!! First of all, thanks for the link on my blog. Love it. Love it. Love it. Any by the way, you really can write. I am not a writer, just putz around on the blog. But you can really write. You have something to say. I like that.

Strawberry Girl said...

I too think about stuff like this, the problem I think is that there is so much propoganda and not enough understanding. I think there is a pure truth out there but it is extremely difficult to find. In fact a lot of what I learned in college made sense in a complete Republican purist kind of way. But then again I had a teacher who got us all thinking about the problems of "Affluenza" which completely made sense, he was more of a liberal Democrat. Then it also makes sense to consider how well we are caring for the planet (terribly) and I see that big corporations often trash it in search for higher returns on investments and their Just in Time philosophies. Yet, get right down to it and pure Republicanism is pursuasive as well. I watched a clip on You-Tube of Jonathan Krohn back in March, he defined Conservatism as "Respect for the Constitution, Respect for life, Less Government, and Personal Responsibility." I wrote about what I thought on my main blog, Strawberry Girls Reflections. However, I didn't get much of a response so I figured that not many people wanted to hear about it... I'm kind of following Ron Paul, but think that his puritinistic dogma would be impossible to implement. Oi' Sorry for the long comment. ;D

Ghost Dansing said...

Technobabe.... thanks for coming by and thanks for the compliment. don't sell yourself short.... i bookmarked your blog.

Strawberry Girl, also.... thanks for dropping by. as Christopher knows, i'm quite the partisan when it comes to politics. feel free to engage me anytime on that topic or anything else if you can't get traction on a discussion..... your place or mine.

Cherie/ Butterfly Dreamer said...

I am so apathetic about politicians and politics , good , bad or indifferent but I love your musical choices love.thanks for being my friend.

Ghost Dansing said...

thanks for dropping by Cherie.... always nice to see you...

fairlane said...

stopped in to say hello.

hello.

jonestown is reopened for business.

hope all is well.

secret agent woman said...

I have been watching the economic crisis hitting in one of the more poverty-stricken pastrs of the country (Appalachia), where bankruptcy rates are outrageous. We've been encouraged and even pushed to accumulate debt and then to renege on that debt. It's a horrible situation. I knwo that's only one of the things you talked about, but at the end of a long few days, it's all my brian can handle!

Ghost Dansing said...

hey Fairlane...glad you're back.... i'll drop by.

thanks for dropping by Secret Agent Woman.... there are a lot of aspects to this nasty recession. most can be traced back to Republican policies of deregulation and undermining governmental oversight.