Lefty vs. Lefty: Was Economic Crash Reagan's Fault?

Nobel Prize winning economist Paul Krugman said yes it was, in a column called Reagan Did It:

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... 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.

Old-school Robert Scheer, in a column called Reagan Didn't Do It, says no -- Clinton-era hacks did it:

Ronald Reagan’s signing off on legislation easing mortgage requirements back in 1982 pales in comparison to the damage wrought 15 years later by a cabal of powerful Democrats and Republicans who enabled the wave of newfangled financial gimmicks that resulted in the economic collapse.

Reagan didn’t do it, but Clinton-era Treasury Secretaries Robert Rubin and Lawrence Summers, now a top economic adviser in the Obama White House, did. They, along with then-Fed Chairman Alan Greenspan and Republican congressional leaders James Leach and Phil Gramm, blocked any effective regulation of the over-the-counter derivatives that turned into the toxic assets now being paid for with tax dollars.

Reagan signed legislation making it easier for people to obtain mortgages with lower down payments, but as long as the banks that made those loans expected to have to carry them for 30 years they did the due diligence needed to qualify creditworthy applicants. The problem occurred only when that mortgage debt could be aggregated and sold as securities to others in an unregulated market.

The growth in that unregulated OTC market alarmed Brooksley Born, the Clinton-appointed head of the Commodity Futures Trading Commission, and she dared propose that her agency regulate that market. The destruction of the government career of the heroic and prescient Born was accomplished when the wrath of the old boys club descended upon her. All five of the above mentioned men sprang into action, condemning Born’s proposals as threatening the “legal certainty” of the OTC market and the world’s financial stability.

They won the day with the passage of the Commodity Futures Modernization Act, which put the OTC derivatives beyond the reach of any government agency or existing law. It was a license to steal, and that is just what occurred. Between 1998 and 2008, the notational value of the OTC derivatives market grew from $72 trillion to a whopping $684 trillion. That is the iceberg that our ship of state has encountered, and it began to form on Bill Clinton’s watch, not Reagan’s.

Hmmmm...think Scheer may have won this round. Fascinating to see two men who despise Reagan  bicker over his legacy. Was he not always so bad? Be interesting to hear more from Brooksley Born...

[pic from the Reagan library]