Well, it bothers me.
Let me start by saying, I am a college student, I am not Allen Greenspan, I'm not even pursuing a degree in economics, all I intend to prove with these posts is that it does not take a degree in economics to understand that lack of regulation combined with uncontrolled greed crippled the American economy.
Deregulation-The beginning of an era
When Ronald Reagan was elected President in 1980 he ushered in an era of supposed prosperity, with his new economic policy called "Reaganomics" at the head of his presidency. What was Reaganomics you ask?
As you can imagine, it is difficult to find an unbiased answer to this question, but to the best of my knowledge, the basic principles of Reaganomics are as follows:
1. Reduce government involvement in all sectors of the economy.
2. Reduce the tax burden of the wealthy and shift it to the middle class.
3. Reduce taxes while cutting government spending.
4. Increase spending and faith in the American economy to combat inflation.
5. The DeRegulation of the economy: "A Laffer Curve" Based economy.
These principles are not harmful to an economy when used within reason, but used in the way the Reagan administration did, they have harmful long lasting effects.
Short Term Profits, Long Term Pain
What Reaganomics did, was simply shift the tax burden from the wealthy to the middle class, Reagan's theory being that the wealth would "trickle down" the social spectrum from the elite to the middle class, and then from the middle class to the lower class, and each class would reinvest their new capital into the American economy. The tax burden was enabled to be shifted through the Tax Reform Act of 1986 signed into law by Reagan which in turn affected the AMT or Alternative Minimum Tax. All this actually did was exempt the already filthy rich from taxes, which in turn made them even richer and forced middle class Americans to bare the brunt of taxes. Twenty years later, and the IRS still cites the AMT as the number one problem with the tax code, coincidental? I think not.
The economics of the Reagan administration seemed valid at the time, and they even created a short term period of prosperity due to its associated tax cuts and "spend everything" mentality associated with Reaganomics. Reaganomics effectively widened the gap between the wealthy and the middle class, consolidating the wealth into the hands of the extremely wealthy, but it never really did "trickle down". What was really going on behind the scenes was that the national debt was tripling throughout the Reagan administration as seen in the below pictorial
The exact ramifications of the Reagan Administration on the economy are unclear at this point, but, in my opinion (as this is an OP/ED, not the New York Times), he began the downward spiral of the American economy by starting the deregulation of the economy and implementing a "buy now, save later" mentality.
The Year 2000
The year 2000, when George W. Bush wins a questionably contested presidential election against the "ManBearPig" Al Gore. Throughout the next eight years, the Bush administration would lift countless regulations on banking that had been in place since the Great Depression of 1927, like the Commodity Futures Modernization Act, which Phil Gramm, a character of questionable sorts helped enact. What did this fiscally irresponsible act do that was so awful you ask? It kept regulators away from a particularly shady business known as "credit swapping". This is simply the buying and selling of bundled sub-prime mortgages, which in themselves are criminal. This is only one of the numerous examples of the Bush administration lifting legislation that helped regulate the American economy.
The Sub-Prime Lending Scam
The Sub-Prime lending scam was in essence a way to loan money to people who could not afford to own the houses they took the loans out for. Simply put, rather than going to the bank with $10,000 and a job that earns $2000 per month, for a $100,000 loan you could go to the bank with $2,000 and a job that pays $500 per month for the same $100,000 loan. Now these figures are just example figures, but the point is that a sensible person with only $2,000 to put down would not go for the loan they could not afford, but go for a smaller more affordable loan. Unfortunately, this is not the case, thousands of vulnerable lenders including the young, poor, and uneducated fell into the Sub-Prime trap and have foreclosed on there homes.
Prosperity of the Bush Administration
For five long years, (2002-2007) there was a time of prosperity in America, a time of prosperity built on the unregulated sale of derivatives, credit swapping, and the selling of American debt. Five years of uncontrolled free market capitalism, five years of short term prosperity that caused by the buying and selling of consumer debt, was this free-market capitalism at its best? Even better, "financialism", a new term, meaning a market based off of Wall Street and its buying and selling of consumer debt. The quick money prosperity rushed in by the slick financiers of the Bush administration was bought to the end by the bursting of the housing bubble it so desperately depended upon.
Next: Part 2-The Housing Bubble
Image Credits:
http://www.noquarterusa.net/blog/2009/02/18/the-mainstream-media-wont-tell-you-but-i-will/ http://www.huffingtonpost.com/2010/12/05/job-market-unemployment-chart_n_792202.html
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