Since our local paper can’t and won’t run a center-left columnist, I’m happy to provide this link to today’s column by Nobel Prize winning economist Paul Krugman, a Princeton professor, who suggests that the Garn-St. German Depository Institutions Act, signed by Ronald Reagan has a lot to do with the root causes of today’s economic crisis.
For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn â€” the turn that made crisis inevitable â€” 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 Americaâ€™s financial rules was Reaganâ€™s biggest legacy. And itâ€™s the gift that keeps on taking.”
A lot ofÂ our Republican friends seem to have forgotten that Taxpayers bailed out the S&L’s during the 1980’s to the tune of $180 billion with Orange County being ground zero as the home based of Charles Keating’s Lincoln Savings & Loan.
“Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending â€” 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.”