Wednesday, September 10, 2008


Robert Brent Toplin, History News Network - Ronald Reagan promised to take government off the backs of enterprising Americans. He told voters that government was not the solution to the nation's problems; it was the problem. "The nine most terrifying words in the English language," said Reagan, are, " 'I'm from the government and I'm here to help.' " His speeches contained numerous warnings about the chilling effects of bureaucratic regulation. Government leaders think, he said, "If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.". . .

The main problem with Reagan's outlook was a failure to recognize that government regulation can serve business interests quite effectively. Many of the regulatory programs started by Franklin D. Roosevelt's New Deal in the 1930s aimed to promote fairness in economic competition. That legislation required greater transparency so that investors could more intelligently judge the value of securities in the stock market. The reforms mandated a separation of commercial and investment bank activities, since speculative investments by commercial banks had been one of the principal causes of the financial crash. Roosevelt's New Deal also created a bank insurance program, the FDIC, which brought stability to a finance industry that had been on the verge of collapse.

These and other improvements of the 1930s worked splendidly. For the next half century American markets operated with impressive stability. There were periods of boom and recession, but the country's financial system did not suffer from the kinds of shocks that have upset the American economy in recent years.

The turn away from rules that promote fair business practices fostered dangerous risk-taking. An early sign of the troubles occurred on Reagan's watch. When the requirements for managing savings and loan institutions became lax in the 1980s, leaders of those organizations invested money recklessly. Many institutions failed or came close to failure, and the cleanup cost more than $150 billion. Yet blame for that crisis did not stick to the Teflon President.

Recent troubles in the American economy can be attributed to a weakening of business regulation in the public interest, which is, in large part, a consequence of Reagan's anti-government preaching. In the absence of oversight, lending became a wildcat enterprise. Mortgage brokers easily deceived home buyers by promoting sub-prime loans, and then they passed on bundled documents to unwary investors. Executives at Fannie Mae packaged both conventional and sub-prime loans, and they too, operated almost free of serious oversight. Fannie's leaders spent lavishly to hire sixty Washington lobbyists who showered congressmen with campaign funds. Executives at Fannie were generous to the politicians because they wanted to ward off regulation.

Meanwhile, on Wall Street, brokerage firms became deeply committed to risky mortgage investments and did not make their customers fully aware of the risks. The nation's leading credit rating agencies, in turn, were not under much pressure to question claims about mortgage-based instruments that were marketed as blue chip quality. Government watchdogs were not active during those times to serve the interests of the public and the investors. . .

Reagan's views of the relationship between government and business helped to put the nation and the world into a good deal of trouble. It is time to recognize that the former president's understanding of economics was not as sophisticated as his enthusiastic supporters often claimed.


At September 11, 2008 1:02 PM, Anonymous Anonymous said...

I was in High School when Reagan was elected. I remember all the people who thought he was going to make America proud again. I would reply to them that this was the beginning of the thirdworldization of the US, and unless we stopped Reagan and his cronies, we would all be living in a Third World slum in a few decades. They would accuse me of being negative, and I would say I'm just paying attention to what Reagan is really saying, not just his happy platitudes.

Though third world as a term has fallen out of vogue, we are coming frighteningly close to that prediction.

At September 12, 2008 11:01 AM, Anonymous Anonymous said...

Amen to that. I was starting college at the dawn of the so-called "Reagan Revolution". and used to try to warn ny friends of much the same thing. It was depressing to see how the young people of that era fell in line with the crap that the then-nascent neocons were pushing. Sadly, even after all the destruction they've wreaked, it appears that many of the newer generation of young people are still falling for their horribly flawed economic, domestic and foreign policy agendas.


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