Paul Krugman has a fascinating OpEd today, essentially tracing the current economic crisis all the way back to Ronald Reagan.

In Bailout Nation, I place a small measure of blame on Reagan for a) appointing Greenspan; and 2) being the intellectual father of the radical deregulation movement.

Krugman goes much further than I. Beyond the financial deregulation issue, he mentions something I was unaware of:  Eliminating the down payment requirements of home buying:

“But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — 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.

Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior.”

Astonishing.

Allow me to put Professor Krugman’s criticism into a little context, via Chapter 3 of Bailout Nation:

“The market for financing homes was quite different in the 1920s and 1930s than it is today.  There were no such things as 30-year, fixed-rate mortgages. Instead, the typical mortgage was an interest-only loan for a period ranging from three to five years. These non-amortizing mortgages called for a balloon payment upon maturity. Most were renewed without much fuss—assuming the borrowers had maintained their jobs and payment histories.

As the 1930s economy went from bad to worse, this cozy home financing arrangement ran into trouble. Home prices entered into a steep decline. A cash-strapped populace, suffering from massive job losses, was frequently unable to meet its mortgage payments.

In History and Policies of the Home Owner’s Loan Corporation, C. L. Harriss writes, “What had generally been regarded as a reasonably sound arrangement by all parties concerned proved to be very weak when a set of interrelated forces combined to bring on a severe depression after 1929 and to disrupt seriously the structure of home-ownership finance.”

I am curious about one thing:   Does anyone know specifically what legislation Krugman was referencing that eliminated the down payment requirement ?

>

Source:
Reagan Did It
PAUL KRUGMAN
NYT, May 31, 2009

http://www.nytimes.com/2009/06/01/opinion/01krugman.html

Category: Bailout Nation, Bailouts, Credit, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

86 Responses to “How Much is Reagan Responsible for Bailout Nation ?”

  1. I believe he mentions it in his article. The Garn-St. Germain Act.

    ~~~

    BR: Doh!

  2. Bruce N Tennessee says:

    “But there was also a longer-term effect. Obama-era legislative changes essentially ended new homebuilding in the United States for years. Why? Government changes in mortgage lending — in particular, limited the ability of families to obtain financing to buy homes because of a protracted decline in the value of homes and a lack of resolution of this decline due to various government programs.

    These changes were put in place in 2009 by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 2010 the memory of the Depression had reignited. Government, declared Obama, is the solution, not the problem; the magic of the marketplace must not be set free. And so the precautionary rules were reimposed with a vengence.

    This led to a radical change in American behavior.”

    Barry, you apparently misread part of the message. There, I fixed it for you…

  3. Jdamon33 says:

    I think it is a bit of a stretch to lay the blame on Reagan. That is like laying the blame for the .bomb market meltdown on Clinton for the policies that led to the internet stocks shooting to the moon…

    classic liberal like Krugman to go after a conservative.

  4. Dan Duncan says:

    Krugman writes: “Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — 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.”

    Before getting to the legislation that eliminated the downpayment requirement, what, specifically, was the legislation that mandated it?

  5. Mannwich says:

    Krugman definitely has a political axe to grind against Reagan, but I do think he’s right that all of this started with his policies and have continued up to this day. He’s on target there but Reagan certainly isn’t the only one to blame. All of our leaders have failed this country in the name of “crony-capitalism”.

  6. buzzp says:

    My father was a Mortgage Banker back when that was a noble calling; started in 1954, servicing a rapidly growing lower/middle area of an eastern city; he would always call directly any of his customers who fell behind, offering them counseling and leads to help; over 40 years, he became a legend in his market, and was frequently cited as what a mortgage banker (or broker, if you will) should be doing for his community. And he was a solid Republican for all those years.

    When Reagan signed Garn, he was furious – thought that Reagan and our reps in Washington should be surcharged for the mess to come. He lived to see the start of sub-prime, but never wrote one himself – he was that confident that it would lead to a disaster.

  7. thetanman says:

    Reagan just started the ball rolling. Greenspan was a bad choice, but still this thing was tiny when Reagan left office. Others took the ball and ran with it, when they saw the magic of debt. Man I must be old: I remember Jake Garn.

  8. Ned Bushong says:

    You can kick and scream all you want, but there are only 2 actual causes of the residential r.e bubble: 1)loaning money to deadbeats, 2)phony appraisals. Every other reason is incorrect. I guarantee it!

  9. karen says:

    This is annoying and absurd… it was the total disregard of the borrowers’ ability to repay the loan that mattered. Pre-Reagan, there were ways around the down payment requirement… but you had to have a job and it was documented.. and a debt to income ratio was not greater than 28%.

  10. buzzp says:

    but still this thing was tiny when Reagan left office.

    Strange, but I faintly remember something called the S&L Crisis – sure, didn’t cost as much as this go-round, but history does rhyme, doesn’t it? Quasi-banks lending to “deadbeats” and condo builders, overloading on bad CRE on top of that, and Senators being paid off to boot.

    If one isn’t willing to recognize that Ronnie was a disastrous lead-in to the massive problems of today, then one hasn’t been paying attention.

  11. franklin411 says:

    @Mannwich
    I don’t assign too much blame to Reagan personally. He was a buffoon and quite honestly most historians think he was suffering from the early effects of Alzheimer’s and dementia by his second term. Reagan was merely the popularizer of what I call Reaganism, which is the doctrine that America can be prosperous without investing in the future. Reagan didn’t invent this idea, but he was its most powerful mouthpiece.

    Under Reaganism, regulations to safeguard the American people were eliminated. Salaries for the average individual stagnated, while CEOs grew fat off the increased productivity of the average worker. The infrastructure that had driven American prosperity for 50 years–education, science, roads, schools, ports–was starved for funding and literally allowed to crumble. Trade barriers with China and Japan tumbled even as these nations successfully waged an economic war against us that was designed to drive our manufacturing sector out of existence.

    Why? Why did they do it? Because they hated America?

    No.

    Because they didn’t want to pay an extra nickel a gallon in gas tax. Because they didn’t want to pay a penny more for a new broom. Because they didn’t want to see their “hard earned tax dollars” going to those “undeserving poverty rats.”

    That attitude is Reaganism, and that attitude is what got us in this mess. We are only reaping the harvest of seeds sown 30 years ago and tended to by Reagan, Bush, Clinton and George W. Bush.

    I don’t blame Reagan. I blame Reaganism, and I blame every American voter who supported any candidate who embraced that ideology. We’re reaping what we sowed.

  12. Mr. C. Cheese says:

    Let’s stay on script here….If you can’t say the line we can always find another actor.
    And action…It was all Bill Clinton’s fault. and cut …..good job!

  13. buzzp says:

    @franklin411

    Well said. I would only add that if one wanted to prove that government doesn’t work, what better way to do it than hire and promote failures (as Reagan did, not to forget both Bushes) and make sure it can’t work.

  14. Brett Tibbitts says:

    Barry, why are you making this so complicated? I know you have to sell books and a “keep it simple, stupid” book wouldn’t sell because it would be too short. But come on, anyone who has half a brain (which eliminates our current President and our current Congressional leaders of all stripes) knows that bailout nation has been caused by:

    1. The US government running itself as GM and Chrysler have run themselves but doing so on steroids (how dare B.O. preach to them about fiscal responsiblity).

    2. Alan Greenspan keeping interest rates too low for too long because he wanted to avoid the nation suffering at all for the tech bubble and 9/11.

    3. The housing bubble, which was caused by #2 above, financiers who got paid immediately for planting long-term bombs and basic human greed among massive numbers of Americans.

    That’s it. End of book.

    Now we have B.O. who trying to make government cool again. Yep, the same government that can’t issue passports, is going to run our healthcare and energy programs through cap and trade.

    If this country stays asleep and believes B.O.’s crap that government is the answer and trillions of dollars in new debt is needed to enable government be the answer, we are well on our way to becoming a third world nation. China and India will carry the flag of capitalism.

    Come to think of it, isn’t that what B.O. wants, i.e., for the lowest common denominator to become the majority? At least Reagan wanted us all to be rich. B.O. wants us all to be poor and dependent on the government. Isn’t that cool?

  15. thetanman says:

    buzzp,

    Still small compared to the sh*tstorm we have now. The problem is when you start this kind of thing its hard to stop even after it blows up. What are you going to say when your opponent says “He’ll restrict home ownership”. You’re going to fold. And anyway, Reagan was out of it: his underlings and the congress took it from there.

  16. Super-Anon says:

    I blame Reagan for continuing the movement toward not paying for the things you buy. He may have talked the fiscal conservative talk, but his actions told a very different story.

    I think the history shows that you can have loosely regulated markets and still have strong economic growth (although it may be more cyclical and unpredictable). I don’t know how else you can explain the pre-WWI growth phenomenon in the US.

    I think history is less kind to countries that continually spend more than they make.

  17. lloydphilip says:

    Krugman is not writing anything new…this has been mentioned before…

    http://www.dailykos.com/story/2008/2/11/153545/483/420/454181

    Regarding the act and the law, here it…

    http://www.fdic.gov/regulations/laws/rules/8000-4100.html

    Also, it’s easy for everyone to play MMQ…however, the facts are the facts….

  18. tiptopdrop says:

    Can someone please tell me how much had to be put down on a home pre-Garn-St. Germain Act?

  19. DMR says:

    This bill is interesting in even more ways: It was the same bill that legalized Adjustable Rate Mortgages.

    Reagan is an easy shot, of course. What about the sponsors St. Germain (D- Rhode Island), Jake Garn (R-Utah), and co-sponsors Charles Schumer (D-New York), and Steny Hoyer (D-Maryland). Or the 292 other congressmen from both sides in a democrat controlled house who voted for it? There was broad interest in this kind of deregulation in the early 80s (not just among politicians or presidents). Reagan was the lightning rod. He wasn’t the lightning.

  20. Marcus Aurelius says:

    buzzp and franklin get the gold stars.

    Any government “of the people” that would allow the deregulation of banking and/or essential industries is crazier than a shit house mouse. And that’s exactly what reagan stood for. Our grandparents put those regulations in place to protect us — because they had gotten screwed (ass-raped is more like it).

    Behind every law or regulation is a social benefit (think speed limits). Are they costly? You bet. Nothing is free. the prosperity of the 20th century middle class was not free.

    What I can’t understand is why the middle class bought the idea that they were self-made, and proceeded to vote to remove the laws that both created them and protected them.

    All of the neo-conservative group-think about how regulation stifles commerce is pure and utter bullshit. If big business had its way, 12 year olds would be working at hard labor for a nickel a day, there would be no healthcare, there would be no public education, the Ohio river would still be on fire, there would be NO mountains in WV, and retirement would come when they shoved your worn-out body into the crematorium (of course, all those visiting this blog would escape that fate due to their own personal superiority and guile).

    Exactly what made America great during the 20th century? It certainly wasn’t Big Business or Ronald Reagan. It was the middle class and social stability — paid for (at gunpoint, I might add) by those who reaped the greatest reward.

    Ronald Reagan began the end. I wish they’d take his name off of every public structure it currently disgraces.

  21. franklin411 says:

    @Super-Anon
    Yes, we had booms and busts before WWI. What the Great Depression showed was that cyclicality carries the risk of socially dangerous extremes, and the benefit of preventing destabilizing plunges was worth the cost of attenuating the potential for periods of extreme growth.

    @buzzp
    Agreed. I think what Reaganism hoped to achieve was what we’re seeing in California. They couldn’t kill the idea that the government should provide a basic safety net to ensure that individual Americans aren’t faced with disaster on an ongoing basis. They couldn’t kill the idea that government should play a role in national economic development. But what they hoped to do was force America into an unsustainable cycle of tax cutting. You could cut taxes so much that eventually the debt would be too extreme, and then conservatives would have an excuse to eliminate FDR’s safety net.

    That’s what’s happening in California right now.

  22. Marcus Aurelius says:

    Brett Tibbitts:

    The lowest common denominator IS the majority. It’s mathematically impossible to have a majority that is above average. For every Billionaire, there a million or more people who make less than the average wage.

    I’m sure your grandparents pulled themselves up by their garters after swimming here one step ahead of the Mayflower.

  23. Concerned American says:

    I can only assume you people that blame Reagan are not old enough to remember Carter. Reagan took over a situation almost as bad as the one Bush just gave Obama. Reagan brought us back to prosperity quickly. Just because Reagan (or anyone for that matter) made a decision in 1981 to do “anything” doesn’t mean that same decision is the best one in 1982 much less 2009 for that matter. Smart people listen, learn, and make adjustments along the way. Dumbass losers sit there while Rome burns and blame everyone that came before him for the screw ups (not to mention any names).

  24. franklin411 says:

    @Marcus
    Wow…Great stuff. I had to google that Ohio River fire thing. Wow!

    @Concerned American:
    Reagan didn’t bring us back to prosperity quickly. Unemployment soared under Reagan and it remained much higher than it was under Carter for Reagan’s entire first term. Reagan inherited an unemployment rate of 7.5% in January 1981. In January 1982 it was 8.6%. in January 1983 it was 10.4%. In January 1984 it was 8.0%. I wouldn’t call >3 years a “quick” return to prosperity.

    http://www.miseryindex.us/urbymonth.asp?StartYear=1977-01&EndYear=1989-01&submit1=Create+Report

  25. rickety rick says:

    i sold residential real estate in the northwest in 1973 and 1974. conventional loans required a minimum of 5 % down, satisfactory credit, and 2 years on your job. your payment could not exceed 25% of your pre-tax income. however, if you could obtain a federal veterans admin loan there was 0% down or if you obtained a federal housing admin loan it required 3% down. both federally guaranteed loans mandated the same credit and work requirements as conventional loans.

    so the federal government was sponsoring no-down long before reagan won the presidency……the garn-st. germain act just allowed conventional buyers to do what the govt had sponsored for decades through f.v.a. and f.h.a.

    to those disrespectful of president reagan, i think you should post your rants on political websites. this site is about making money.

    ps. i believe reagan was a great president.

    ~~~

    BR: Aaaahh, my partisan friend, your bias blinds your perception as to what I actually wrote: My blame for Reagan was “small” while “Krugman goes much further than I” . . .

    And my post was about the legislation that impacted Real Estate and not about politics . . . But like all partisans, you can neither see nor understand nuance, subtlety or anything beyond bumpersticker policy proclamations and dittohead talking points.

    Please learn to read

  26. call me ahab says:

    Marcus Says:

    “You could cut taxes so much that eventually the debt would be too extreme, and then conservatives would have an excuse to eliminate FDR’s safety net.

    That’s what’s happening in California right now.”

    your’e right- but the people of California rejected the tax increases- so the alternative is to cut expenses. California will have to make choices as to what they find important-

    end of story

  27. Graphite says:

    Paul Krugman indulges in some pretty awful historiography in his article. A lay reader would come away thinking that the sole aim of the post-New Deal regulations and federal involvement in banking was to prevent the creation of another asset price bubble. In fact, their overarching goal was to expand the availability of credit, primarily by socializing default risk. Fannie Mae and Freddie Mac were creations of the New Deal, as was the FDIC, which has been instrumental in lulling depositors into a false sense of security with respect to the safety and liquidity of their banks. The savings and loans got into hot water in large part because populist forces prevailed in allowing them to venture into dodgy lending as a way to compete with the large commercial banks.

    The “too big to fail” doctrine was already written inexorably into American banking practice long before Reagan ever took office. Had he tried to supplant it with a more laissez-faire approach by, say, letting Continental Illinois and its uninsured depositors go under, the voters would have been happy to replace him with a more credit-expansive-minded Democratic alternative.

    One also feels a slight twinge of revulsion in reading Krugman praise the savings rates of the 1970s, the same period those very savings were being eroded year after year by the very Keynesian inflationary policies which Krugman now prescribes as the cure for the current crisis. It would be nice if Mr. Krugman would settle on whether the economy suffers from a “Paradox of Thrift” or a dearth of savings; or, failing that, if he could explain how the economy could have better handled a 10% savings rate in 1998-2007 than it can in the year 2009.

    Jim Grant’s Money of the Mind is an excellent history for those wishing to explore how the Depression-era innovations of deposit insurance and federal mortgage credit led inexorably to the inflation of the 1970s and the debt-fueled speculative booms of the 1980s-1990s. Paul Krugman is writing the 10-year-old’s version of the history of this period.

  28. Marcus Aurelius says:

    Concerned American:

    Apparently, you’re too young to remember Nixon and depegging the dollar from gold – which led to Carter having to make the tough choice to hire Volker to straighten out Nixon’s “conservative” bullshit. Reagan never made a dime for this country. He put us into debt, and we lived like we were prosperous.

  29. Graphite says:

    ” You could cut taxes so much that eventually the debt would be too extreme, and then conservatives would have an excuse to eliminate FDR’s safety net.

    That’s what’s happening in California right now.”

    No, what’s happening is that the state can finally no longer afford to pay for $280,000-per-year airport administrators and nurses making over six figures.

    Better to be thought a fool than to open one’s mouth, proclaim “California’s taxes are too low,” and remove all doubt.

  30. Bruce in Tn says:

    I remember Carter…good man, lousy president. I remember Arthur Burns…If you look back at the 30 year bond quotes Barry posted this weekend, you will see 14%……..this is Carter and Burns territory…

    Again, you people who blame your situation on either party are wrong…you simply have to consider that Eisenhower was right about big government and business and the military, and we have to limit the damage to us, the taxpayer and voter.

    The entire problem is that the congressional and executive branches have not been fiscally conservative for a generation….and until you spend only what you bring in, there is no solution..

  31. franklin411 says:

    @Ahab
    Some did reject higher taxes, but most of us saw the propositions for what they were: band-aids. I want us to fix the budget here once and for all, and I’m willing to accept a “lost generation” to achieve that. This state cannot be governed under its current political structure, which includes:

    * minority rule (it takes just 34/100 votes to create a deadlock in the legislature)
    * term limits (since legislators are kicked out so quickly, there’s no incentive for compromise)
    * prop 13 (this makes us reliant on cyclical sources of revenue, such as income taxes)

    And consider the choice we were given

    A Yes vote meant $20 billion in cuts
    A No vote meant a $25 billion in cuts

    You can’t call that a real fix.

  32. Mannwich says:

    @rickety: Excuse me, but Barry’s post here was precisely about Reagan. What else woud you have us comment on re: this post? Something different? Please advise.

    The Right’s fixation on Reagan’s Demi-God status is probably as bad as the Left’s is with FDR. It’s a lot more complicated than either would care to caricature.

  33. Marcus Aurelius says:

    Graphite:

    the inflation of the ’70s was caused by Nixon depegging the dollar from gold. New deal policies had much to do with limiting speculative booms in the stock market and creating jobs by public works programs. fannie mae and freddie Mac – while not untarnished – certainly did not lead to our current predicament. Deregulated banking did.

  34. dmlopr says:

    @ Brett Tibbitts,

    It can be shorter than that. How about “People who sign shit that shouldn’t”. Whether it’s malice, apathy, ignorance, or whatever, each POTHUS, Congress, and every friggin’ person signing a mortgage, they all should be accountable for what they sign. PERIOD. And the SOB’s on Wall Street too.

  35. danm says:

    No, what’s happening is that the state can finally no longer afford to pay for $280,000-per-year airport administrators and nurses making over six figures.
    ————–
    This is hilarious! You can’t even agree on what’s screwed up and who did it!

    Your system is FUBAR.

    It’s not this or that, it’s your WHOLE friggin’ system based on a multitude of flawed ideologies.

  36. Transor Z says:

    I think it’s total crap to blame Reagan and I’m really just so sick of partisan discourse around serious issues. Garn-St. Germain was just one of many incremental — and bipartisan– legislative steps along this very long path.

    There is nothing inherently wrong with creating “subprime” mortgages or using ARM mechanisms. There is no box on mortgage applications that says “Check here if you are a Deadbeat.” Give me a break.

    The credit worthiness of loan applicants can be substantiated by credit checks, pay stubs, tax returns, etc. Lenders blaming deadbeat homeowners is like a john/jill blaming the town prostitute for crabs because he/she said he/she was a virgin. That’s what due diligence is for — ask around, trust but verify. Give me a freaking break already.

  37. buzzp says:

    My, but we are all touchy today. And that with the market up near 3%.

    The country has a long history of greater economic growth with Dems in the White House, and an even longer history of disasters overseen by Reps. One should remember that the modern social state started with Bismarck, not exactly a flaming liberal.

    Otoh, one should also remember the Panic of 1907 and the Great Depression, both brought to us by Republicans. Neither did much for the economy, nor for housing sales. But both were the result of free-booting banking and stock-broking, with rampant speculation. At least in those days some of the bankers had enough character to take the proper way out.

    I’ve been reading Tuchman’s “A Distant Mirror” – 14th century Europe. Amazing how the nobles of the time thought it was only right and proper to tax everyone but themselves (and charge excessive fees to everyone else, too) – seems to remind me of modern Republicans.

    And it was also a century of perpetual war – as Bruce in Tn so aptly notes, when big government leads to big war with big industry needing said big war to survive and prosper, then we have what we have. Could someone explain to me why we have over 1,000 bases outside the U.S.? (but that is really going off-topic, and I don’t want Barry to banish me in the new regime….)

  38. call me ahab says:

    Transor Z Says:

    “Lenders blaming deadbeat homeowners is like a john/jill blaming the town prostitute for crabs because he/she said he/she was a virgin.”

    too true- the lender’s are the experts- they are the one’s lending the money- and they have to make the decision on whether someone is an acceptable credit risk for the loan they are requesting- the golden rule-

    he who has the gold rules-

    re Reagan-

    you have to look at the climate of the time when Reagan was elected and why certain legislation was passed-

    just like now- we could be looking back years hence- wondering what the government was thinking expanding FHA loans w/ 3.5% down payment to loan amounts of $729,750- obviously they are trying to revive the housing market and filling in where private lenders have bowed out- but-

    could turn out to be a bad mistake with unacceptable losses that threaten the very viability of FHA loans in the future-

    only time will tell

  39. The Curmudgeon says:

    Thank-you, Graphite, for clarity.

    Krugman is selling newspapers, that’s all. Cause and effect analysis requires we look first to things that appear close in time. Housing boom and bust 2001-2009? Blame it on Reagan, whose last year in office was 1989? What about the intervening decade and a half before the boom got really cranking?

    If it is Reagan’s fault, as so many here seem to believe, then Reagan really was one of the most influential and important presidents of all time. Of course, by the same reckoning, Lincoln caused Obama when he freed the slaves, even if Obama has no slave ancestors, so I get it–there is no time limit to causation analysis. Next Reagan will be blamed for the impending conflict with Iran. Gee, this is fun. I blame Clinton for the dearth of blow-jobs available nowadays from blue-dress wearing women.

  40. buzzp says:

    @ The Curmudgeon says:
    Next Reagan will be blamed for the impending conflict with Iran.

    Then I guess you forgot Iran-Contra, and Bush the first pardoning various senior members of his/Ronnie’s cabinet.

    Going back to Tuchman, 20-30 years is a blink when one is looking at trends, and Ronnie’s reign will properly be evaluated by history for the failure it was in the long term.

  41. Transor Z says:

    @buzzp and curmudgeon:

    Absolutely, I am still SO pissed off at Edward III for starting the 100 years’ war in the mid-1300s. Next to the repeal of Glass Steagall that’s probably the main reason for the crisis.

  42. rickety rick says:

    @manwich. how about commenting on no-down loans being around for decades before reagan? that’s the topic barry and krugman were posting about , no-down loans and deregulation.

    you’re dead wrong when you state that “all of this started with his policies”. no-down started decades earlier than when reagan was president. consider yourself advised.

  43. call me ahab says:

    buzzp-

    nobody more blind than a partisan- also-

    because it requires no thinking you will always have a ready answer- because it will always be the fault of the other political party on every issue-

    can’t make it easier than that to come to a decision

  44. Mannwich says:

    @rickety rick: I never said that I blamed Reagan entirely. It’s complicated topic. Many are to blame everywhere in this country, including your Demi-God, Reagan. There’s no simple answer.

  45. buzzp says:

    @Transor Z

    But Edward III had a strong claim to the French throne, almost as strong as Bush’s WMD argument.

    respice, adspice, prospice

  46. Transor Z says:

    @buzzp:

    Dude, I think you’re confused about the Rice-a-roni directions:

    It’s add rice, add spice, tastes nice.

  47. advsys says:

    @franklin411
    great line about the doctrine of investing in the future. An excellent way to phrase it.
    A severe cultural problem right now. The short term solutions that we are using are simply stealing from future growth potential. I say cultural because no one is outraged by this.

    ~~~

    BR: If you read a certain book, you will note that some people are outraged …

  48. Mannwich says:

    What’s interesting is those on the Right still like to blame Clinton for the ills of today (and during W’s reign of error, as an excuse for his many failings), but when Demi-God Ronnie is thrown in the mix, those same folks have a hissy-fit because he was such a “likable fellow” and “saved the country from disaster” (he beat Communism, dammit!). Some of you same people liked to give Clinton no credit for anything he did (ascribing it all to Ronnie) that worked well and are no more objective than those are on the Left with FDR.

    That’s part of the problem today. Too many of us are thinking simplistically through ideological fan-boy, Right-Left lenses. It’s certainly worked out well for those who’ve robbed us blind in the process. Let’s move on, please. Bottom line is we’re all share in the blame at least a little for the decrepit state this country is right now.

  49. buzzp says:

    @ call me ahab

    I’m not a partisan, merely an observer. If you don’t like the observations, take exception with facts.

    It isn’t necessary to lower the tonality here by ad hominem attacks. Leave that to Barry.

  50. rickety rick says:

    @manwich:

  51. franklin411 says:

    @Curmudgeon
    Reagan was one of the most successful, most influential Presidents of all time. That doesn’t mean he was one of the *best* Presidents of all time. But as far as ingraining an ideology–a destructive and disastrous ideology, but an ideology nonetheless–into the American system, he was wildly, tragically successful.

    Remember when Obama got roasted by the Clintonites in January 2008 for saying the above?

  52. pmorrisonfl says:

    I don’t have it/them in front of me, but it does seem to me that the ‘hockey stick’ part of the growth of US public and private debt on Steve Barry’s debt charts start right around 1980. I think f411′s ‘Reaganism’ point has a lot going for it. If one of the Reagan defenders has an evidence-based argument for why that debt growth shouldn’t be assigned to ‘Reaganism’, I’m all ears… but I haven’t seen it yet here.

  53. Mannwich says:

    This is one of the few recent times that I agree 100% with franklin411. Nicely put, f411. Now if you’d only take your blinders off regarding your boy, Obama! ;-)

  54. Transor Z says:

    @f411: “Dangerous memes”

    http://www.ted.com/talks/dan_dennett_on_dangerous_memes.html

    IMO Dennett takes the human-as-robot position way too far, but this is good stuff nonetheless on the power of memes to hijack consciousness.

  55. call me ahab says:

    buzzp-

    an observer?- wow– you sound like quite the seer of political discourse- but I have you pegged as more of the following-

    from Merriam-Webtser’s- partisan-

    “firm adherent to a party, faction, cause, or person ; especially : one exhibiting blind, prejudiced, and unreasoning allegiance”

    hopefully my tonality meets your expectation- if not-

    bite me

  56. buermann says:

    I believe Title VIII, Alternative Mortgage Transactions is the specific part of Garn-St.Germain he’s talking about there, c.f.:

    http://www.fdic.gov/regulations/laws/rules/8000-4100.html

  57. freejack says:

    Reagan deserves all the credit Krugman give him, but there is a change made under Clinton that I’m surprised no one talks about because I think it fed the CDO market and housing speculation in general.
    The Taxpayer Relief Act of 1997.
    It increased the capital gains deduction for a primary residence from a 1 in a lifetime $125,000 after 55 years of age to $500,000 if the house was your primary residence 2 to 5 years you owned it.

  58. Brooklynsky says:

    PK blames Ronald Reagan for today’s financial crisis, thanks to his signing of the Garn-St. Germain Act in 1982, which liberalizd bank regulation.

    Looks like Reagan wasn’t alone. From Wiki:

    The bill is named after its sponsors, Congressman Fernand St. Germain, Democrat of Rhode Island, and Senator Jake Garn, Republican of Utah. The bill had broad support in Congress, with co-sponsors including Charles Schumer and Steny Hoyer. The bill passed overwhelmingly, by a margin of 272-91 in the [Democratic-controlled] House.

  59. bklyn99 says:

    Paul Krugman is the ultimate bullsh!t artist…why stop w/ Reagan Paul…how about Adam Smith ?? Is Reagan responsible for FANNIE AND FREDDY ? iS REAGAN the father of the credit default swap? Did Reagan subscribe to a ZIRP for 2-3 yrs following 9/11? Did Reagan endorse the brilliant work of Moody’s? Standard & Poors’?? Recessions for a million different reasons have been happening for centuries but this one is different. Obama w/ a compliant Congress will insure that it “doesn’t happen again” or at least on his watch. When i was in school about 30 yrs ago one was taught that recessions were “healthy” and purged economy of excesses. No longer. Banks don’t fail. Auto companies don’t fail. Insurance companies don’t fail. It’s the system’s fault. It’s the capitalist’s fault. It’s Reagan’s fault…No fault capitalism makes gov’t the majority owners of Gettlefinger Motors and Shitty Bank. Keep the printing presses on overtime….idle cash needs to find a home…buy GOLD and canned goods w/ 2 hands.

  60. bdg123 says:

    The criminal incompetence of Washington under Reagan and equally crooked Democrats is outlined in William Black’s book. It’s hardly a Reagan thing. Additionally, while I’m not ready to post it, Krugman is equally complicit for his support of Clinton policies that did more to destroy the economy than anything Reagan did. Krugman has turned into a blathering idiot. One who is equally responsible.

  61. buermann says:

    According to this, however, the existing downpayment requirement had shrunk to just 3% by the mid-60s, as a regulatory statute set by the Federal Housing Authority:

    http://goliath.ecnext.com/coms2/gi_0199-5119105/The-creation-of-homeownership-how.html

    Of course, even 3% is better than the 43% of first time buyers who put ZERO PERCENT DOWN in 2005:

    http://www.usatoday.com/money/perfi/housing/2006-01-17-real-estate-usat_x.htm

    Wow.

    Krugman is more right when he blames “Reaganomics” than when he blames “Reagan”, but the political expression of the neoclassical orthodoxy reigning in the universities – which is vulgar enough by itself without touching politics – is everybit as much a Democratic plank as it was Republican around the time Carter was elected. If not more so: the GOP still had Austrians in the wings.

  62. I blame Reagan for continuing the movement toward not paying for the things you buy. He may have talked the fiscal conservative talk, but his actions told a very different story.

    Here’s a Q: what was Reagan’s “Medicare Prescription Drug Bill”? I can’t recall anything of that scope offhand..

    Reagan got his tax cut, but could not get the spending cuts needed to truly “starve the beast”, and that’s why Stockman got the boot. The only thing worse than tax-and-spend is borrow-and-spend, and unfortunately it seems we can’t ever get folks looking at reducing the size and scope of FedGov.. Perhaps they’ll only learn via the hard way..

  63. Bruce in Tn says:

    By the way, new to Barry’s blog..

    He loves political disagreement…I have tried to knock him in the head when he gets overzealous, but the room fought the last election for 3 months after it was over. He kept posting inflammatory election topics into January….sometimes he’s just 8 years old…

    I think deep within him lives a political zealot yearning to breathe free…

  64. rickety rick says:

    let’s see, reagan was president of the screen actors guild and they’re barely holding on; reagan was governor of california and now it’s on the ledge; reagan was president of the u.s. and it’s toast. coincidence or psychic phenomena?

    get a grip reagan haters.

  65. Moss says:

    It all comes back to the Fuc*ing banks. Whatever we do or don’t do moving forward and forever more MUST be focused on the SOB’s once and for all. Put it in the Constitution so none can change it. It they are TBTF then by God they must be too clean to fail.

  66. dolearyjr says:

    All Krugman’s comments may be correct but the banks of that day were not jumping all over themselves providing mortgages to everyone. My wife and I were buying our second home about that time and Seattle First-National required 20% down. BTW Sea-First soon became part of BofA because their astute trading department knew only three words: drill, baby, drill!

  67. The Curmudgeon says:

    “But as far as ingraining an ideology–a destructive and disastrous ideology, but an ideology nonetheless–into the American system, he was wildly, tragically successful.”

    @Franklin411: See this is where your naivete shines through. Do you really think Reagan (or any other politician for that matter) has the capacity to “ingrain an ideology” into voter’s brains?

    Again, you’ve got it bass-ackwards (take that, you stupid filter). Politicians reflect the populace, not the other way ’round. They know full well that they can’t push anyone to a view that they reject. They can get by with a little around the edges, but nothing major, or they’d be tossed out on their ear.

    To find blame, all one needs do is look in the mirror. What you see is what happens when the individual thought and responsibility required of freedom is cast aside for comfort and security. Until that changes, until we Americans quit looking to Washington, or Bejing or anywhere else but ourselves for answers to our problems, we’ll keep believing the fantasy that money-printing creates wealth, and will spiral ever downward.

    Blame Reagan, or Reaganism if you want. He’s dead and gone. But where do we go from here?

  68. Cursive says:

    Paul Krugman is as much a left-wing political hack as Donald Luskin is a right-wing political hack. In other news, the POTUS runs the executive branch. Congress, one of the 3 branches of our federal government, is responsible for enacting the laws of the land, particulary all spending bills. If this is news to anyone on the site, please begin remedial courses on an understanding of the U.S. Constitution. Who should get the credit for “ending welfare as we knew it”: President Bill Clinton or the Republican Congress?

  69. Onlooker from Troy says:

    Someone please remind me to skip the political posts that just break down into the same old food fights. No one gets anywhere in these spats. And it’s what our congress does too while not accomplishing anything useful.

  70. Graphite says:

    One should remember that the modern social state started with Bismarck, not exactly a flaming liberal.

    As I recall, this project yielded some stunning long-term successes.

    the inflation of the ’70s was caused by Nixon depegging the dollar from gold.

    … which was necessary in order for the government to continue generating the inflation it needed to pay for the New Deal and Great Society welfare programs, as well as the Vietnam War.

    fannie mae and freddie Mac – while not untarnished – certainly did not lead to our current predicament.

    It takes a special, almost heroic level of denial to believe that backstopping mortgage debt with the full faith & credit of the United States taxpayer did not play a *huge* role in inflating the housing bubble. [BR: Mortgages did not have the full faith and credit of the USA until September 2008; Note that Fannie was around since 1938, and for the first 6 decades or so, there were no problems. Perhaps we should focus on something that occurred more recently than 1938 as the cause ? ]

    I don’t have it/them in front of me, but it does seem to me that the ‘hockey stick’ part of the growth of US public and private debt on Steve Barry’s debt charts start right around 1980. I think f411’s ‘Reaganism’ point has a lot going for it. If one of the Reagan defenders has an evidence-based argument for why that debt growth shouldn’t be assigned to ‘Reaganism’, I’m all ears… but I haven’t seen it yet here.

    I’ll bite. The only way the welfare/warfare state which was jump-started by the FDR and LBJ administrations could be sustained was through continual dollar inflation. When the Kondratieff cycle turned toward disinflation in the early 1980s, those levels of spending had to either be abandoned or supported by borrowing. (The idea that the economy could have supported the high tax rates needed to fully pay for these programs is a myth. Clinton was able to balance the budget in the 1990s only on the back of tax receipts from bubble-driven capital gains.) The American people, not then in the mood to surrender any entitlements or imperial ambitions at all, chose the latter, and Reagan never had any mandate to really cut spending in the 1980s.

    I have no love lost for Ronald Reagan. He could have chosen to steer the country on a more sustainable fiscal path by cutting public spending and refraining from bailouts. He would have been remembered as the Herbert Hoover of the 1980′s, but these would at least have been the actions of a courageous statesman rather than an empty, hollow, and false icon of a badly misunderstood, mislabeled “laissez-faire.”

  71. pmorrisonfl says:

    Graphite… you write as though the government’s revenues and spending were and are the driver of the economy. This argument doesn’t explain the other 80% of spending or debt. I would agree with your notion that ‘The People’ didn’t want to be responsible.

  72. dsawy says:

    One of the things that people forget in all this finger-pointing is that not everything in the financial markets is solely the result of regulatory and political changes. There were huge changes in the technological landscape that put Wall Street into overdrive in the 80′s – not the least of which was the collapsing price in computing power.

    Prior to the widespread deployment of minicomputers and PC’s, computing power cost serious money, was locked up in the back room and wasn’t an especially friendly environment for rapid application development. Once the “super-mini” and the PC’s entered the market, suddenly a whole lot of financial modeling, statistical analysis and derivative development could proceed at a much more rapid pace. Add in networking and common database back-ends that made large datasets easier to transfer, acquire/distribute, store/recall/analyze – and we saw a sudden upsurge in the field euphemistically called “financial engineering.”

  73. mark mchugh says:

    When Reagan took office, the US was the world’s largest creditor nation. When Bush 41 left office, we were the world’s largest debtor nation.

    In my opinion, that makes him the godfather of Bailout Nation.

  74. gwtbc says:

    Thanks to the posters who answered the actual question (about the actual regulations).

    Hard to find wading through all the muck

  75. Deborah says:

    It seems to me that lending laws are fluid, tightening after losses and easing up to bubbles. I am Canadian and where I am many people lost a lot on the 1980 housing bubble, and it was insured by Canada Mortgage and Housing. Well, lending standards tightened. Then they got weak again.

  76. Graphite says:

    Thanks to the posters who answered the actual question (about the actual regulations).

    Hard to find wading through all the muck

    Just because not every poster was interested in answering your exact question, does not make the entire rest of the thread “muck.” What an arrogant attitude. Go start your own blog if you want to control the content.

  77. buermann says:

    Graphite: “it takes a special, almost heroic level of denial to believe that backstopping mortgage debt with the full faith & credit of the United States taxpayer did not play a *huge* role in inflating the housing bubble.”

    Ginnie Mae, the mortgage issuer that was really “backstopping mortgage debt with the full faith & credit of the United States taxpayer” dropped off the face of the earth during the bubble years. In good faith I take it you’re talking about the “implicit backing” from the GSEs.

    From 1960 all mortgage debt was backstopped by the full faith and credit of the US taxpayer through Fannie Mae: but no housing bubble.

    From >1960 on, after LBJ privatized Fannie, to <1995 most mortgage debt was backstopped by “the market”‘s belief in the government’s “implicit backing” of said mortgage debt through the GSEs, still no housing bubble.

    Ginnie Mae, with full faith & credit, was somewhere off scribbling in important margins for needy families, or something. No housing bubble.

    There wasn’t a housing bubble until well after 1995, despite all these guarantees implicit or otherwise dominating the market share, and the only thing that changed was that there was less mortgage debt backed by said implicit guarantees. Please explain how I am in denial when I suggest the government’s backing of mortgage debt had nothing to do with it?

    It looks to me more like the government’s backstopping of mortgage debt was a policy that created a great deal of household savings over many decades, which was then systematically looted.

  78. buermann says:

    Less-thans are chopped, ok.

    That should read, “Prior to 1960-something all mortgage debt….”

  79. Mikhail Sergeyevich says:

    Folks seem to forget the historical context of Reagan and Reaganism. Reagan’s economic policies certainly precipitated the current crisis, but only because Reagan’s military policy failed to end in the expected war with the Soviet Union. Reagan’s (and Bush II’s) policies really only make sense in terms of his millenialism. There was really no future. We would defeat the Satan’s Soviet’s in a rain of nuclear fire and thereafter peace would reign under Christ until the final Armageddon. In other words, borrowing from Weird Al’s Reaganite revision of Prince, America under Reagan had a duty to party like it’s 1699.

    Bush II’s administration was filled to the brim with millenialist loons convinced that the end times were approaching and, in greater number, thieves that fed off the religious right’s lunacy. Wall Street – and the Ivy Leagues that fill it – simply leveraged these people into creating the condition necessary to steal the wallets of the vast majority of Americans and send us down into a small “a” armageddon.

    Though certainly not millenialists, its a good thing from a Reaganite point of view that Obama, Summers and Geithner are so beholden to the Ivy League ethos of grandeur and privilege based on caste, and that Wall Street/Hollywood is the ultimate manifestation of the highest caste. Accordingly, there will be no real reform, just cash for the “right folks” and “party like it’s (fill in a year)!. We can all rest assured that Reaganism’s Millenialist hopes wil thrive under Obama and that the end is near.

  80. jr says:

    In addition to the @3% down payment the Federal Government has offered for home owners since the 1960s as mentioned above, in the late 90s we had the rise of the Seller Funded Down payment assistance (SFDPA) scam whereby strawmen “charities” were allowed to post down payments for home purchasers and avoid the 3-3.5% FHA down payment requirement.

    SFPDA = effectively 0% down payment for buyers. http://web.mit.edu/AFS/sipb/contrib/wikileaks-crs/wikileaks-crs-reports/RS22934.pdf

    In February 2009 TBP hosted a guest author’s piece advocating legislative opposition to the efforts to once again allow SFDPA, which was banned in the fall of 2008. http://web.mit.edu/AFS/sipb/contrib/wikileaks-crs/wikileaks-crs-reports/RS22934.pdf

    It seems less than even time to go after Reagan and not also point out the FHA’s longstanding and lenient 3-3.5% down payment requirements as well as the rise of SFPDA and its effective 0% down payment requirements under the Clinton Administration.

    ~~~

    BR: What percentage of the total mortgages issued from 2001-2008 were FHA 3% down payments?

    How significant were these in the major problem areas (Florida, California, Arizona, Las Vegas?)

    The FHA loans were totally irrelevant to our current situation . . .

  81. Weevie says:

    From a Wikipedia article (Early 1980s Recession):

    Banks

    The recession came at a particularly bad time for banks due to a recent wave of deregulation. The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) had phased out a number of restrictions on banks’ financial practices, broadened their lending powers, and raised the deposit insurance limit from $40,000 to $100,000 (raising the problem of moral hazard).[9] Banks rushed into real estate lending, speculative lending, and other ventures just as the economy soured.

    By mid-1982, the number of bank failures was rising steadily. Bank failures reached a post-depression high of 42 as the recession and high interest rates took their toll.[10] By the end of the year, the Federal Deposit Insurance Corporation (FDIC) had spent $870 million to purchase bad loans in an effort to keep various banks afloat.[11]

    In July 1982, Congress enacted the Garn-St. Germain Depository Institutions Act of 1982 (Garn-St. Germain), which further deregulated banks as well as deregulating savings and loans. The Garn-St. Germain act authorized banks to begin offering money market deposit accounts in an attempt to encourage deposit in-flows, removed additional statutory restrictions in real estate lending, and relaxed loans-to-one-borrower limits. The legislation encouraged a rapid expansion in real estate lending at a time when the real estate market was collapsing, worsened competition between banks and savings and loans, and encouraged overbuilding of branches.[9]

    The recession affected the banking industry long after the economic downturn technically ended in November 1982. In 1983, another 49 banks failed—easily beating the Great Depression record of 43 failures set in 1940. The Federal Deposit Insurance Corporation (FDIC) listed another 540 banks as “problem banks” on the verge of failure.[11]

  82. jr says:

    Ooops,

    TBP’s Anti- SFDPA article:
    http://www.ritholtz.com/blog/2009/02/implode-o-meter-rolls-out-campaign-against-fha-subprime/

    ~~~

    BR: I like offering a diversity of ideas here . . .

  83. buermann says:

    jr, “3% down payment the Federal Government has offered … since the 1960s”

    The government required a minimum 3% down payment from home buyers. A requirement. Not an offer. Not a subsidy, unless you compare it to prior to 1930ish, when the market requirement was upwards of 30%. I thought they had struck a nice balance at 20.

  84. Kimble says:

    So the government mandating a minimum down payment is protecting who from what?

    It is protecting the bank from itself. The Reagan bill didnt remove a banks protection, it increased their responsibility.

    Not everything considered prudent needs to be mandated by the government.

  85. George47 says:

    During the 1980′s I recall a sense of desperation in the US regarding the ascendency of the Japanese economy. They were making better products at lower costs than we were. We didn’t fully understand how they could build better products at a lower cost since in our culture better products generally cost more to make. Among other things, we thought they had simplified their processes and cost structures to reduce unnecessary management and department reviews and approvals. Most of the large US companies experienced severe loss of market share and margin squeeze in our competition with the Japanese. The issue of becoming competitive with the Japanese became an urgent matter with everyone, and I’m pretty sure our political representatives were influenced by this dynamic as well. The government’s response was to examine regulations on our businesses to simplify and eliminate those that might be adding undue cost to our businesses making them less competitive in the global market. So, it was natural at that time to experiment with fewer or simplified regulations. In hindsight, it might be easy to see which changes worked and which didn’t work so well, but at the time there was surely a lot of guessing going on and much political pressure for and against change of any kind.

    I don’t think it helps a lot to try to attach blame to one political party or the other for all the good and bad we’ve experienced in our country. Neither has a very good track record when it comes to managing financial matters. I would make this observation. The government, unlike businesses, has no competitive pressure to keep costs down and efficiencies up. Therefore, we the people must constantly put pressure on the government to keep spending under control. The record shows that since mid-1970s government spending has been out of control under both parties and at all income tax rates. The easiest thing in the world for our politicians to do is spend our money to buy our votes. And of course, it makes their life easier if they can get their constituency to believe their opponent’s constituency will pay for all the new programs they want.

    As Americans, I think it would be wise if we all realize that we’re in this boat together. Government spending is so wildly out of control, and now it’s becoming clear that there is no way we’ll be able to follow through on our promises regarding Medicare and Social Security, not to mention all of the many other programs out there, regardless what they do with taxes. And, there is no way anyone is going to be able to avoid paying these taxes (Bush tax cuts eliminated, VAT tax on consumption, cap and trade, gasoline, alcohol, tobacco, etc. not to mention possible new regulations on businesses or tariffs added which increase costs that cause product prices to go higher, or devaluation of our currency from printing too much money to service the debt). When folks finally see that they can’t just get someone else to pay for all this, there will likely be a huge tax rebellion which will cause more short term problems, but may in the long term (hopefully) have the effect of getting the government to manage our money better. In the meantime, let’s hope we don’t have too many large national disasters, military conflicts, pandemics or the like to deal with. This country is in a lot of trouble and we need to start thinking like Americans instead of Republicans or Democrats if we’re going to get through this mess……..

  86. [...] week, I disagreed with professor Paul Krugman, who essentially blamed much of the credit crisis an economic collapse [...]