Web Letters: Reagan Didn't Do It

A lot of what you read from the right about this is just mythology. For example, you read that that Reagan's passionate belief in the miracle of markets is now under attack, Reagan being assigned the role of high priest of faith in markets. In fact, Reagan was the most protectionist president in postwar American economic history. He increased protectionist barriers more than his predecessors combined.

He called on the Pentagon to develop projects to train backward American managers in advanced Japanese methods of production. He carried out one of the biggest bank bailouts in American history, and formed a government-based conglomerate to try to revitalize the semiconductor industry. In fact, he was a believer in big government, intervening radically in the economy. By "Reagan" I mean his administration; what he believed about all of this, if anything, we don't really know, and it's not very important.

Rhoderick Gates

Melbourne, Victoria, Australia

This article is surprisingly honest and balanced with respect to much of what I read at The Nation.

As the blame is spread around, however, and there was plenty of pols involved in both parties, a large chunk of blame goes to the Federal Reserve. Low interest rates and a flood of dollars meant that investors were looking for a good place for dollars to land. The Fed should have seen what was happening as well as the pols.

Do note as early as 2004 the CFO at Freddie advised that far too many risky loans were being made, to no effect.

Frankly, it's a bit much to ask that we give government oversight and expect them to exercise better judgment than business people whose livelihoods depend on success.

Tom Lewellen

Scottsdale, AZ

Yup, I agree: blame Clinton. That's easy, but let's not revise history to the point that we can't ever recover. We are still avoiding the elephant. Politicians are not economists. They are experts are creating cute little catch phrases to sell to the stupid masses like you and me, while they drink scotch with the billionaires. We have my favorite, Nixon, who created ping-pong diplomacy, then kind-hearted Carter, with human rights for everyone, very good and didn't even pretend to understand economics. Poor old Alzheimer's Reagan with his antiprotectionism and good old Bubba's raising boats. Behind the scene, of course, we have the true architect of this ungodly mess, good old "irrational exuberance" himself, the idiot of all idiots selling the sham wow of the century, Alan. Clinton signed the Gramm Leach Bliley thing Christmas eve, 1999, because only five senators voted against it. My economics professors went absolutely ballistic. Remember, poor old horny was being told that the Glass-Steagal thing was old-fashioned, and here we are. This whole crazy mess wouldn't be so scary if we didn't have the apostles of the mess, Geithner and Summers, still in charge.

James L. Pinette

Caribou, ME

After reading Scheer's article I had the same question that he starts his article out with, except in reference to Scheer, not Krugman.

Yes, some deregulation began under Carter, and, yes, none of the worst deregulation could have occurred without plenty of Democratic support. But underlying the last thirty years of economic policy is a philosophy. A fundamentally conservative philosophy. All of our economic policies in the last thirty years have been fundamentally shaped by that philosophy. Reagan's administration was the first to completely and unapologetically espouse it. It has been so pervasive the last thirty years that we almost never even debate its basic precepts. That is the problem that must be addressed, and it is much larger than just some laws (yes, really bad ones) that were passed in the last ten years. Until the nation firmly and completely rejects the deregulation, anti-government philosophy rightly termed Reagonomics, we will never dig ourselves out of the hole we find ourselves in.

To the degree that Scheer's view, that the place we find ourselves in today is the result of deregulation that took place over the last ten years, and not something much deeper and pervasive, is prevalent even in the liberal Nation, then I hold out very little hope that we will fix what ails the country.

Vincent Sheffer

San Francisco, CA

Reagan was just another willing wielder of the hammer putting another nail in the coffin of America's financial system. A system that has been dying since 1913. In the very near future its imminent demise will usher in a "One-World Society," which is the centuries-old quest of international bankers.

Reagan was but one in a long line of presidential enablers. He allowed Greenspan to serve as his Rasputin on a wide-ranging number of issues during their many private meetings. Among these issues was the substitution of production-led growth with growth driven by consumption, supported by cheap credit for consumers and lower production costs for business as deregulation and outsourcing (union-busting) proceeded apace.

The fundamental villany in all of what Krugman skirts around is not Reagan's acts of omission but rather acts committed by Republicans and Democrats, going back to Woodrow Wilson.

Greenspan, and all Fed Chairmen before him, could have eliminated the consequences wrought by avaricious banks by restoring the authority to manage our currency, and therefore our banking and investment modes, to the Treasury, wresting it from the private Federal Reserve. Doing so would repudiate the actual and perceived approval of usury by the government. That perception translates to "it's OK to be risk-averse with other people's money."

Moreover, the larger the pool of bets, the greater liklihood that the government will become the emergency rescue unit if losses on the bets become intolerable.

The Federal Reserve supports and champions: "monopolies," all efforts to deregulate, eliminate usury laws, broaden the role of financial institutions, etc. Doing so creates more debt unencumbered by administrative processes designed to protect the public.

More debt means higher debt-service revenues for the Federal Reserve system of banks.

Rectifying the negative effects means the restoration of something like Glass-Steagal and repeal of deregulatory authorities wherever those laws limit oversight, audit and access to financial dealings that impact the public.

The ultimate cure for our financial system is indeed the retaking by the government of the authority to control our own currency rather than leave it the hands of the private sector.

Had there been a monetary system like that created by Abraham Lincoln (based on greenbacks: debt-free currency) to fund the Union during the Civil War, there is a very strong liklihood that we would not be on the brink of national financial collapse due to debt created by consumption led economic policy, financial deregulation and bank-created inflation.

For an indepth discussionof causes and solutions, please see, E. H. Green's Web of Debt.

Robert Bostick

Arlington, VA

This article is a load of BS. The question isn't which presidential administration administration it started under--the question is which party was most responsible for it, as well as which party was most capable of preventing it.

It is simple to arrive at the answer to that question. First, you have to admit that a common theme of "deregulation" running through this failed economic philosophy is chiefly a Republican principle.

Second, you have to admit that the Republican Party held the presidency, as well as majorities in the House and Senate for most of the last thirty years and most of the last two presidencies. This tells you which party was in a position to prevent it, as the Republican Party could've when they had a majority under Clinton, had Clinton decided to veto the CMFA & Gramm Leach Bliley Act

Third, you have to admit that the Democratic Party isn't as solid as the GOP as far as party principles--there are a good number of social and fiscal conservatives on the Democrat side, Blue Dogs for example. So of course you can easily find some Dems who participated in the Republican-sponsored deregulation orgy and, as the author of this article did, put them at the forefront to make it look like they're the ones who started this mess when they in fact aren't.

Fourth, take a look at the authors of the Commodity Futures Modernization Act bill: The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on December 14, 2000, by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley Jr. (R-VA), Rep. Larry Combest (R-TX), Rep. John J. LaFalce (D-NY) and Rep. Jim Leach (R-IA). The bill was never debated in the House.

So, a Republican authored it, many Republicans co-sponsored it.

Fifth, take a look at the authors of the Gramm-Leach-Bliley Act: respective versions of the legislation were introduced in the U.S. Senate by Phil Gramm (Republican of Texas) and in the US House of Representatives by Jim Leach (R-Iowa). The third lawmaker associated with the bill was Rep. Thomas J. Bliley Jr. (R-Virginia),

All Rs there, right?

Lastly, yes Clinton signed it. but as you can see, (1) during the Clinton presidency the Republicans had a majority & they were rallying behind this bill. (2) The GLBA was amended onto a $384 billion omnibus spending bill in the eleventh hour, a bill that Clinton was desperately trying to pass. If Clinton had vetoed anything the Republican majorities in the house & Senate surely had the power to override Clinton's veto, did they not?

Mark Baker

Des Moines , IO

"Reagan Didn't Do It"? It seems that chopping up history is the order of the day. Paul Krugman, Robert Sheer and now I all delight in doing so. I'm tempted to go back to Haymarket and the wonderful way economics was taught in Illinois and the eight-hour day was dispatched.

Mercy! Let's start in '80. Nineteen eighty, that is. Virulent inflation was being fought valiantly by Fed chairman Paul Volker, by raising interest rates. This is usury, which is frowned on by all three of the great religions.

Enter the United States Congress, which passed a bill that effectively overrode state laws against usury. This was the signal that many had been awaiting, "Greed is good." To this day it can be seen emblazoned on the Wall Street Journal.

The rest, as they say, is history.

Louis Ricker

Italy, TX

Ever hear of the Savings and Loan scandals or Iran/Contra? No, Reagan didn't start it, just kept it alive. "Business-as-usual" has been around since after WWII. People, we can set up a "truth and reconciliation" concept later; what do we do with the information now? Think democracy, get involved--from the "grassroots up," make it better; if not for us, then for following generations. Learn, communicate, set standards, re-invest in what can become a very "unique" America.

ira reschman

Tampa, FL

My reading of the Krugman article suggests an analogy to New Orleans and the Katrina tragedy. Why did New Orleans flood? Blaming the hurricane is too easy. You have to go back and understand why the levees failed. This means you have to track back through the years of government decisions on maintaining the levees to the first time that someone decided that secure levees were not as important as some other spending need (or perhaps, some tax cut).

The approach to regulation defined during the Depression held up until the Reagan years. At that point, it started to unwind. Small steps at first, then gradually bigger steps until most of the finance world was unregulated (no levees at all). When the storm hit, it blew everything away.

To blame mortgages for the relatively poor for this catastrophe is wrong. Between 200 and 2008 homeownership increased from around 66 to around 70 percent. In the same period, total outstanding mortgages rose from under $8 trillion to over $14 trillion. The relatively few, relatively small mortgages held by lower-income people are a minute fraction of this total. The system could easily have withstood all of these mortgages defaulting.

Easy mortgages caught middle-class people who borrowed ever more against their homes.

Finally, mortgages are not the problem either. At least, not all of the problem. Credit Default Swaps were sold with total value of $350 trillion. Multiple bets against all types of structured products. This leverage or risk brought the system down.

And, in Krugman's view and mine, it all started with the changes made during Reagan's tenure.

Brent Beach

Victoria, BC

I'm sure Mr. Krugman knows full well that others after Reagan had just as much, if not more, to do with this stuff than Ronnie did. But he would rather blame someone from the other side of the aisle.

One slight correction to Mr. Scheer: Krugman does not have a "Nobel Prize in Economics," because such an award doesn't exist. The award he won was established in the early 1970s and had nothing to do with Alfred Nobel. The Nobel Foundation does administer it, but on their website they explicitly state that this award is not a "Nobel Prize."

Craig Seufert

Meredith, NH

I had the same response to Krugman's NY Times column, and in a comment I posted there pointed out that Fernan St. Germain, co-sponsor with Jake Garn (R-UT) of the Congressional Act Krugman referenced, was a Democrat and that the act passed with broad bipartisan support. In the House of Representatives, it was co-sponsored by Chuck Schumer and Steny Hoyer and it passed the Democratic-controlled body by a vote of a whopping 272 to 91.

And what was the stepping stone to this "New Deal" betrayal? Jimmy Carter's signing of the "Depository Institutions Deregulation and Monetary Control Bill," which, according to John Birger (money.cnn.com), "abolished state usury caps that had limited the interest rates banks could charge on primary mortgages--and, in the process, gave banks more incentive to make home loans to folks with less-than-perfect credit.... DIDMCB...open[ed] the door to some predatory lending in low-income communities...deregulated the mortgage market and made home loans more available."

I have never voted for a Republican in my life, and Jimmy Carter's was the first presidential election I took part in. My point is not to defend Reagan and the GOP but to insist that none of it could have been accomplished without the help of Congressional Democratic majorities who very much participated in the destruction of the New Deal--the very foundation of the modern Democratic Party.

Nothing will change if we fail to acknowledge that our current economic downfall was a not just a GOP-engineered event. It has resulted from the failure of our democracy and won't be fixed until we have a Democratic Party dedicated to Main Street--and the humane principles behind FDR's New Deal--not Wall Street.

Chris Trakas

Manhattan, NY

Reagan, Schmeagan. A genial front man for the banks, but really a B-movie actor.

Actually, Wall Street did us in. The financial whiz kids found a way to make an easy buck--selling junk as gold--and now they're hooked on their criminal ways. They don't want to work hard--as in making things. So they continue to flip papers and click on the mouse.

Goodbye GM, goodbye Empire.

So down the tubes of history we go--of course, the Pentagon helped--a trillion for war every year and the constant invasions, occupations, dronings.

Not to mention that we have a rich caste that refuses to pay taxes or even serve in the military, plus we have really awful leadership (see Rome).

"Oh mama, can this really be the end...?"

Howard Kaplan

Belmont, MA

What planet were you on during the Reagan years? He was a B grade actor at best and an Alzhiemer president.

Sally Spelbring

Lawrenceville, GA

Like Scheer, I was fairly appalled when Paul Krugman attempted to blame the deregulation-derived mess of today on Ronald Reagan. It is widely understood at this point that Clinton and Clinton-era figures, in addition to Bush II-era figures, had major and direct contribution to the mess of today. In particular, the repeal of part of Glass-Steagall and the ascension of Summers & Rubin, Inc. during the Clinton years were not just contributions to the mess at hand but also part of the Democratic Party losing itself.

I suspect Krugman doesn't want soil the area where he eats, so he simply forgot to mention this entire chunk of the history of our finance mess today. It's good that Scheer holds him to the fire for this lapse of memory.

Seymour Friendly

Seattle, WA

As I read Krugman's article, his point was, Reagan started it. He has, elsewhere, given the Clinton administration its full measure of blame. And Ayn Rand's obscurantist disciple Alan Greenspan, and Gramm and his sister.

The process of desanctifying Reagan is essential, and Krugman's analysis is an effective tool. If Reagan could have done worse, he would have, and it was a Democratic Congress which (timidly) stood in his way.

Let us not exculpate Mao to better condemn the Gang of Four (or five). So to speak.

Barry Blitstein

New York, NY

Basically quite accurate, but I would add one major detail: Barney Frank and a few others continually pushed for Fannie Mae and Freddie Mac to to raise their percentage of loans targeted to lower income and less creditworthy people. That is a very large part of the disaster.

John D. Froelich

Upper Darby, PA