To what extent is Ronald Reagan culpable for the current credit crunch?

Answer 1

I dont know where you got the ntion that Reagan would have anything to do with it. But the people responding have only anwsered part of the reaons why it happened.

Yes, lending institutions are part of it, but it had more to do with poor FED policy. Banks just follw the incentive forces that the FED gives to them. Furthermore, borrowers are just as much to blame as lenders. They both made bad desisions.

But primarily, the Federal Reserve kept interest rates way too low for too long after the 2001 recession. This kept a lot of liquidity or supply of loanable funds in the market. The low interest rates allowed people to borrow a ton of money for homes, which drove up prices very quickly. As prices went up, less and less people were able to afford mortgages, but because interest rates were low, banks had lots of money still around to lend. So they started giving loans, subprime and otherwise, to people who were not credit worthy.

When the FED finally did raise interest rates, all of a sudden, people stopped buying homes as the real price of a mortage went up. When this happened, home values decreased as demand decreased. This in turn caused a lot of people to default on their loans as the loan was now bigger then the value of the house. Many more peopel defaulted because they could not afford tthe higher interest rates and they had bad credit raiting to begin with.

So when all of these loans are going bad, banks are losing a ton of money as well as all of the investors who own the securitized loan instraments (banks sell off loans in pieces in share like vehices to investors). Because of this, they are tightening their lendng standards in order to reduce losses. Also there is a lot of panic because no one really knows just home many loand will go bad, so no one knows how to realistically evalute the risk premium of a loan which determines at what rate thay should charge. These two effects reduce the amount of credit avaiable and hense we have a "credit crunch."

This is why the FED has recently reduced rates, so that the supply of money available for lending will increase again and it will be easier for businesses and home owners to get loans. The hope is that this will prevent economic growth from slowing or stopping due to not having enough credit available to start and expand bussinesses which creat jobs and increase economic output.

On banking dereggulation, perhaps that may have contibuted to the not knowing the real value of securites, but in all it has been good for the economy, because deregulation has increased the amount of funds available for homeowners and businesses to borrow. Many people own homes now that would not have had it not been for banking deregulation.

Also, banking deregulation, among other htings, has allowed commerical banks to offer mortgages, and saving and loan instatutions to offer bussiness loans, which was not allowed before. This diverifies the buiness of banks and adds stability to the system. Its just liek diversifying your stock portfolio. This is apposed to the late eightees where the savings and loan crisis occures where a lot of mortage banks went out of business and contibuted ot the 1991 recession. It was learning from this that continued largely bipartisan support for banking deregulation. Even though we are having a housing bust, and the banking industry is hurting, it is nowehere close to sollapsing and haviong major bank failures as there was in the laet 1980's and early 90's.

Answer 2

The mistakes were made by the current crop of money managers and what ever the rules the financial markets have always taken on risks that were not properly accounted for. Banking deregulation has permitted the risky mortgages to become hidden among the securities that Banks own and so makes the problem worse, Deregulation was done while Regan was president but it had a lot of support and the net effect are probably positive overall. Although there will be many bad loans, many more people will not default and were able to buy homes that would have not before.

Answer 3

None whatsoever!

The current credit crunch is not the doing of the Federal Government or of any President (even the feckless Carter and Clinton administrations) but of private banks and loan institutions.

Irresponsible loan officers have been giving loans to unqualified people again for over a decade and now we are paying the price for the malfeasance of the private sector. Regardless of the interest rate or of banking regulations or of collateral assets, you are not supposed to give out loans to people who can't pay them back! Simple as pie!

President Ronald Reagan with his hands off 'laissez faire' economic policies is particularly exonorated from any irresponsible financial blunders by the loan officers of private financial institutions.

Answer 4

Wow, are we blaming Reagan again? Isn't that a little old by now? The credit crunch is the fault of America's consumer mentality- buy what you can't afford now and probably won't be able to pay for later. That attitude is shared equally by Democrats and Republicans. We all need to learn to downsize our lifestyles.

Answer 5

He's too far removed from the credit crunch problem. It would be like saying it's Thomas Edison'a fault that I got into an argument with my girlfriend. If he never invented the phone I would have never called her. And I would have never accidentally said I think her friend is hot.

correction - Alexander Graham Bell.