Reagan and Anti-government outcomes

Reagan's disdain of government was at the heart of the corruption that plagued the administration

· In 1980, as a candidate, Reagan listed 70 issues: ethics in government was not among them. He also didn't mention the subject in his memoirs.

· came to Washington as an explicit enemy of government; argued private sector and markets were greater indicators of “people’s desires” than government

· Reagan's low esteem for government led to plundering and deals that have been forgotten--

· By the end of his second term, more than 225 high officials had been indicted on criminal charges or resigned after allegations of corruption. Some went to jail, others were forced to resign, a few were cleared.

· One study concludes that is “remarkable that while preaching against waste, fraud, and abuse of government power, he presided for 8 years over an administration that combined the old fashioned graft of Harding Administration with an undisguised grab for presidential power that would have done credit to Richard Nixon. Yet left the white house with highest approval since Eisenhower.” (Stealing from America)

Examples of type of corruption:

o at the Dept of Housing and Urban Development-cost will come to four to 8 billion dollars.--looted the Moderate Rehabilitation program, designed to encourage low-income housing--these grants instead handed out to friends who had left HUD to rake in big money as consultants or to Republican bigwigs

o James Watt garnered $300,000 in public funds to arrange loans for 3 projects

Was this corruption more than other governments? Absolutely—corruption tied to the class politics and philosophy and disdain for public trust in government, a corruption that would have been imaginable to Herbert Hoover, Dwight Eisenhower or LBJ, who, for all their faults, deeply believed in public trust. So it is absolutely incorrect to say this is just like what happened under other administrations.

Major example of plundering of public resources:

SAVINGS AND LOAN deregulation and subsequent BAILOUT

The S&L crisis unfolded in late 1980s and early 1990s, but was begun in the first 2 years of the administration

· From 1930s Great Depression legislation , S&L industry had been geared toward financing home-ownership (recall It’s a Wonderful Life?=Bailey Bros. Building and Loan?) with U.S. government backing loans up to $10,000 (by late 1970s) for each investor—and the government regulated the interest rates that could be charged to home-owners;geared toward guaranteeing the investment of middle-class savings while providing a means to build housing; Regulated under New Deal era legislation; Until deregulation, business loaned money to individuals to buy homes,.No loans for office buildings or shopping centers, high-flying oil drilling ventures.

· New demands for deregulation of the S&L industry triggered by desire to get in the “big time”; recall from previous outline that the banks were reeling in money from petrodollars in the 1970s and by the early 1980s, the modest goals of financing the “American dream” of purely home-loans and community loans seemed small change to players in the S&L industry

· the Reagan administration's legislation, passed in 1982 permitted S&Ls to raise interest rates and to leave their area of competence (lending for housing) and venture into other uncharted, riskier waters; key provisions reduced government rules over the industry, while government guarantees to back up deposits increased to $100,000

o KEY: this “risk” underwritten by American taxpayers; depositors were allowed to open unlimited number of accounts, each insured by federal government up o $100,000.

· important to remember the Congressional influence on the legislation, there were lots of Congressmen who were behind this, and benefited personally from the deals that were made. Another example of the corporate and money power influence in both parties....

· ideologically designed as part of his program of reducing government regulation of an ailing industry: argued that the market worked better than government

· The S&L industry was soon turned in to a huge casino. Money poured out of the S&Ls into speculative investments in real estate, condos, oil and gas ventures, high-interest "junk" bonds. Insiders bought luxurious estates, planes, and yachts with the deposits. One Florida S&L operator purchased $13 million worth of art and took it home for "safekeeping".

· The nation's savings and laons were freed from restrictive federal regulation and given permission to expand beyond their traditional role of making home loans. Now they could use federally insured deposits to buy and develop all sorts of properties. The new law proved a bonanza for high-rollers, get rich-quick artists, swindlers --Ivan Boesky, of Wall Srreet manipulator fame, acquried a small thrift; George Bush Sr.’s son Jeb Bush got one; Democrats also, an insiders’ game

· The gross misuse of people's savings was allowed to persist because Reagan administration policymakers and key members of Congress accepted millions in campaign contributions from S&L kingpins.

o David Stockman, Reagan's OMB manager, blocked hiring of S&L examiners.

o Justice Dept under Attorney General Edwin Meese refused to respond to evidence of criminality that were continually brought before them. The players were their friends, and the leading Democratic Party interests did not want to expose their buddies who were involved. No alerts went up to media from Congress, it was insiders’ game kept under wraps

· entire rickety structure was finally brought down by the shakeout of the real estate and financial markets in the late 1980s. Fraud and illegality was discovered in over 60% of the failed thrifts. When depositors sought their money they learned that it had been invested in worthless buildings and land, junk bonds, or had been stolen outright. Reports of mob influence and CIA money laundering operations circulated

· In 1988 both political parties concealed the mounting crisis because both involved in profits from the speculation: funding major Congressional campaigns (including John McCain, who became part of the famous “Keating-Five” scandal)

· Both parties at the highest levels were aware of the illegal deals when they quietly, in a bi-partisan fashion it in 1988, both agreed not to use it in 1988 election, to conceal the problem.

· After the election, crisis revealed, and under bi-partisan legislation, the S&Ls were bailed out, under regressive plan that eroded the social security fund and medicare funds. Thusthe taxpayer was guarantor of deposits that were invested in deals that were never viable.

· --WILL COST THE TAXPAYERS AT LEAST AS MUCH AS $500 BILLION DOLLARS;

· Congress established the Resolution Trust Corporation, which has involved government in continual sell-off of properties acquired through the bailout. Since then, the agency has regularly sold off real estate from failed S&Ls at far below market value -- to buyers who were able to quickly resell the properties at much higher prices. Thus, tax dollars are subsidizing profits for private investors.