To My Generation:Don’t Doom Our Kids to a Great Depression

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled financial institutions… All in all, I think we hit the jackpot”, the President proudly proclaimed.

So declared the President, as he signed a bail-out of the then-largest consumer financial arm of the financial industry in history.


Now, a stupid-ass, incredible belief that a right-wing, Bush-appointed, Chief Justice of the U.S. Supreme Court would hold the Quran on which a President of the United States would swear his oath of office—while the highest ranking members of the House of Representative and Senate were standing on the podium beside him no less, is what an individual from my home-state of Mississippi actually posted to me in a comment on Facebook about President Obama’s swearing in ceremony.

But understand; dripping green slime irony, the quotes and circumstances in the first paragraphs refer to President Ronald Reagan in 1982, talking about the S&L bail-out, NOT President Obama in 2008 after the Bush Crash of late 2007!

The financial institutions being bailed out by Reagan in 1982 comprised the entire Savings & Loan Industry …all of them….NOT the Wall St. Investment Banks.

What Reagan had unknowingly begun, based on horrible financial advice,  was a slow-moving, but now nearly unstoppable, freight train to a 2nd global Great Depression based on mythical “supply-side”economics and the mistaken belief that tax-cuts to the wealthy magically create demand for products and

Reagan was, as it happened, wrong about solving the problems of the Savings & Loan network of alternative mortgage-specific lenders. On the contrary,  The Garn-St. Germain Depository Institutions Act of 1982: de-regulated Savings & Loan Institutions and allowed them to offer Adjustable Rate Mortgages for home loans and lowered value-to-debt ratios. Essentially, this bill ended New Deal protections for consumers on mortgage lending. Ronald Reagan quoted upon signing: “This bill is the most important legislation for financial institutions in the last 50 years.”


  • By 1983 (just one year later)– 35% of the country’s Savings & Loans were unprofitable, and 9% were technically bankrupt.
  • By 1989, only six years after the “reform” bill above was enacted by Congress, still-president Reagan had to bail out the industry with a taxpayer-financed bailout measure known as the FIRREA providing $50 billion to close failed Savings and Loans and stop further losses; eventual total collapse of the S&L Industry. All in all, Reagan’s “jack-pot” cost the taxpayers of the U.S. approx. $150 billion (back when that was a lot of money) and caused the disappearance of a once consumer-friendly alternative to the U.S. banking system.

Reagan’s “jackpot” bill turned the modest-sized troubles of the nation’s safest mortgage-lending savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression during the term of another Republican, George W. Bush.

The Real Culprit in the 2007 Crash

In fact, the more I look into the origins of the current disaster, the clearer it becomes that the linchpin event, the  wrong turn taking our economy down the wrong way of a one-way track— the turn that made the 2007 crisis inevitable — took place in the early 1980s, during the Reagan years.

Attacks on Reaganomics (full disclosure–including most of mine) usually focus on rising inequality and fiscal irresponsibility. But tracing back the evidence, Columbo style, it was indeed, Reagan who ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains.

He also broke with longstanding rules of fiscal prudence. Long-standing since Republican Herbert Hoover, ran the same exact fiscal programs that ran the economy of the late 1920s into the great Depression of the 1930s.

On the latter point: traditionally, the U.S. government ran significant budget deficits only in times of war or economic emergency. Federal debt as a percentage of G.D.P. fell steadily from the end of World War II until 1980. But indebtedness began rising under Reagan; it fell again in the Clinton years, but resumed its rise under the Bush administration, leaving us ill prepared for the emergency now upon us.

The increase in public debt was, however, dwarfed by the rise in private debt (you remember the good ole years when credit card debt-interest paid was a personal itemizable deduction), made by financial deregulation (ahhhh, there’s that word again… Airline de-regulation that lead the once-high-flying, profit-making, customer-service friendly, world-leading industry to the current-day “charge-you-to-rent-a-pillow” disaster that it is).  The change in America’s financial rules was Reagan’s biggest legacy. And it’s the gift that keeps on taking.

The immediate effect of Garn-St. Germain, as I said, was to turn the Savings & Loans from a problem into a catastrophe. The S.& L. crisis has been written out of the Reagan  adulations, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $150 billion.

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 real political leaders who had just experienced The Great Depression, and were determined to prevent another. But by 1980 the memory of the Great 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, and sure enough, the problems that kept the ultra-rich from playing by the same rules as everyone else in America—were thrown on the scrap heap.

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

We weren’t always a nation of big debts and low savings: in the 1970s and first two years of 1980, 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 2007 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.

In the infamous words of the now unforgettable, 2012 presidential debate, race death-knell of Rick Perry 2012…..Oops.

Now, the immediate causes of today’s economic crisis lie in events that began in 1980, but took place long after Reagan left office — in the global savings glut created by surpluses in China and elsewhere, and in the giant housing bubble that savings glut helped inflate.

But it was the explosion of personal not governmental debt over the earlier quarter-century that made the U.S. economy so vulnerable. Overstretched borrowers were bound to start defaulting in large numbers once the housing bubble burst and unemployment began to rise.

These defaults in turn wreaked havoc with a financial system that — also mainly thanks to Reagan-era deregulation — took on too much risk with too little capital.

There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — Alan Greenspan, Larry Summers, Robert Rubin—The self-proclaimed Committee To Save the World—who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it.

Those same people today, and the people they mentored (Paul Ryan, Sam Brownback, Scott Walker, Rick Scott, Bobby Jindal, Grover Norquist, the Koch Brothers, etc.), are behind the 2nd coming of that global financial upheaval. The preponderance of exploding debt is now student debt (taxpayers, under George Bush covered most of the mortgage bubble), instead of credit card debt, but the formula remains the same.

And I’m speaking directly now to the members of my generation…

You can bury your heads in the sand if you so desire, but for you, the generation that loves to post pictures of your happy, (debt-ridden—student debt or otherwise–families on Facebook, I hope your kids keep those pictures….because the ones coming down the road will feature a much worse-off, not- so-happy, top of your family tree… unless you wise up quickly and

  1. Vote to overturn Citizens United.
  2. Get the lobbyists running our politicians in Washington out of the business of governing.
  3. And elect some political leaders who will quit catering to Fox News and your biases, and get some economic know-how back into the job of running the U.S. Economy rather than winning elections.


Harvey A. Gold