Sunday, February 6, 2011

David Stockman (Reagan's 1st budget director) on Bank Deregulation (Part of Reagan Centennial hoopla)

Worth quoting, from an interview at:

What do you think about the thesis that the deregulatory impulses that received such a huge boost under Reagan contributed to Wall Street's recklessness ... and laid the groundwork for the financial crisis?

"The only thing that was seriously deregulated during the Reagan era was banks, and that was the wrong thing to deregulate. Surface transport deregulation was started by Carter and we finished it, airline deregulation was already done by the time we came in. And those were the right things to do. But in the case of financial institutions, banks are not free enterprise businesses, they are wards of states, they have the right to create money out of thin air. They have to be regulated, and they have to be kept out of the speculative use of deposits that are guaranteed by the taxpayer, by the FDIC. And in the '90s, the Clinton administration joined in on this, with the elimination of Glass-Steagall and all of the other remaining restraints on the banking system. That was a tragic, terrible error; it was a confusion of the free market with a set of institutions that are inherently dangerous. And as a result of bad monetary policy interacting with the deregulation of depository banking you created a witches' brew that ended up predictably in the meltdown of 2008."

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