Posted by: Dirk | July 6, 2009

Original Sin

.. is the title of the introduction of The Inside Job – The Looting of America’s Savings and Loans by Stephen Pizzo, Mary Fricker and Paul Muolo. A month ago Paul Krugman claimed that ‘Reagan did it’, and when you read the first few paragraphs you might understand why he thinks so:

President Ronald Reagan stepped through the tall French doors of the White House Oval Office into the bright sunlight of a lovely fall morning. Whispers and nudges rippled through the crowd, and a hush fell over the Rose Garden. A squad of Secret Service agents melted into the audience as Reagan, smiling broadly, strode across the lawn to the podium.

The president stood at ease for a moment and looked out over the assembled guests, beaming with pride and satisfaction. He had promised the American people that he would get government off their backs, that he would deregulate the private sector. Reagan had promised to remove government constraints on the accumulation of private wealth. On October 15, 1982, less than two years into his presidency, he had invited 200 people to witness the signing of one of his administration’s major pieces of deregulation legislation.

Reagan told the audience of savings and loan executives, bankers, members of Congress, and journalists that they were there to take a major step toward the deregulation of America’s financial institutions. He was about to sign the Garn-St Germain Act of 1982, which he said would cut savings and loans loose from the tight girdle of old-fashioned, restrictive federal regulations. For 50 years American families had relied on savings and loans to finance their homes, but outmoded regulations left over from the era of the Great Depression, Reagan believed, were preventing thrifts from competing in the complex, sophisticated financial marketplace of the 1980s. The Garn-St. Germain bill would fix all that, he promised.

At the conclusion of his remarks, and following enthusiastic applause, Reagan took his seat at a table surrounded by the bill’s proud political parents. He flashed a broad smile for the cameras and launched into the signing process. With each sweep of a souvenir pen, thrift regulations crumbled. It was an exhilarating moment for Ronald Reagan. The bill was “the most important legislation for financial institutions in 50 years,” he said. It would mean more housing, more jobs, and growth for the economy.

“All in all,” he beamed, “I think we’ve hit the jackpot.”

The speech of Ronald Reagan at the event is available online.

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