The Legacy of Reagan

Paul Krugman's latest NY Times op-ed exposes how Ronald Reagan lay the foundation for today's financial crisis:

“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.

There's more good material in Krugman's article, go read the whole thing.

The bottom line:

Reagan was a snake oil salesman. His feel good "Morning in America" message created an aura of hopefulness while his actions created the institutions and regulations that led to the present calamity.

I find it funny how the right wing wants to blame the Community Reinvestment Act as the cause of excessive speculation in housing. But facts don't support this sleight of hand. The real foundation for the rise of "finance capitalism" lays with Reagan.

The succeeding presidents, including Clinton, did nothing to defuse the ticking time bomb. Sadly a lot of innocent people have to pay for this fiscal malfeasance. Of course the Wall Street fat cats have long since walked away from the table with their pockets stuffed with the cash they hoovered up. It is the middle class and the lower class who will shoulder the tax burdens for a generation or two that will clean up this mess.