Panics

Although Thomas Jefferson and Alexander Hamilton - two opposite sides of the national bank debate - both understood this simple concept, it wasn't brought into the realm of law until the mid-1930s with a series of strict regulations on the abilities of banks to create debt (loan money), and strong political limits on the ability of government to go into debt outside of wartime. That's why from the founding of this nation until 1935, we experienced a "banking panic" at least once every 10 to 15 years from 1776 until 1935.

Then Roosevelt took the banks in hand, by creating a series of regulatory agencies and empowering them with strict laws. The result was that for fifty years in the United States - roughly 1937 to Black Monday of 1987 - we didn't experience a single national "panic" or consequential bank failure. The stock market grew steadily (allowing for the blips surrounding WWII).

It was also hard to get a credit card (short term debt), buy a car (medium-term debt), or get a mortgage (long-term debt) without proving that you would be able to repay the amount in the future - in other words, that there would be future expanded-economy dollars that you could lay claim to because of your particular job and skills. Credit was regulated.

Reagan changed the rules of the game, particularly when he brought in the anti-regulation Libertarian Alan Greenspan as Chairman of the Fed. He ran up a massive federal debt - greater than that of every president from George Washington to Jimmy Carter combined - in just eight years, and began the process of loosening the power of bank regulators.

That process was finished by a Republican Congress (particularly Phil Gramm) and President Bill Clinton (with help from Rubin and Summers) and then booted out the door by George W. Bush, who borrowed even more than Reagan. Bush even used an obscure 19th century law to fight states' attorneys general who wanted to regulate or prosecute fraud among banks and mortgage lenders in their states (see the article by Eliot Spitzer in the Washington Post just before his being outed for sleeping with a hooker).

It's pretty amazing that until your buddy Reagan started mucking up the works along with the others that followed him, booms and busts weren't considered normal, huh? But the David Gergen's of the world would have you believe that this is just normal and not a result of Roosevelt's New Deal regulations being unraveled by his anti-regulation, free market espousing buddies. Their kind of freedom means the freedom to take the entire United States and possibly world economies down with their greed and the freedom to hide their dealings that did it.

Gergen was just crying about the Goldman Sachs hearing being a "lynching" the other day. Now he's trying to paint the results of deregulation and their activities as somehow normal. He's showing himself to be nothing but a water carrier for the have-mores with no concern for the average citizens who's lives they have destroyed with their gambling that took down the financial markets.