Did Reagan Cause The 2008 Crisis?

Can we trace the roots of the 2008 financial crisis and housing bubble to 1982?

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Paul Krugman wrote a column earlier this week with that provocative thesis. He argued that the Garn-St.Germain Despository Institutions Act was the most important step leading up to the 2008 financial crisis because it deregulated mortgage lending, allowing "alternative" transactions such as lending with little money down. Reagan is to blame because he supported the bill and it passed under his watch in 1982 (never mind that many Democrats also supported the bill, such as Congressman Fernand St. Germain, one of the cosponsors.

It's a narrative that might appeal to many on the left--but even some of Krugman's intellectual allies are disagreeing with him. Robert Scheer writing at The Nation's website says that Reagan's loosening of mortgage lending was not a sufficient step in creating the housing bubble, and that Clinton-administration deregulating was more important.

Reagan signed legislation making it easier for people to obtain mortgages with lower down payments, but as long as the banks that made those loans expected to have to carry them for thirty years they did the due diligence needed to qualify creditworthy applicants. The problem occurred only when that mortgage debt could be aggregated and sold as securities to others in an unregulated market.

Another problem with Krugman's thesis is that Garn-St. Germain didn't seem to be the end of mortgages with 20-percent down payments. According to Arnold Kling, they were the "workhorse" of the housing market until fifteen years ago, long after 1982.