We Didn’t Know Krugman’s Nobel was for Fiction

Conn Carroll / June 01, 2009

New York Times columnist Paul Krugman has truly outdone himself this time. He has managed to identify a single piece of legislation passed by President Ronald Reagan in 1982 that single handily brought down the entire world economy a mere 25 years plus later. AEI’s Peter Wallison sets the record straight:

The Garn-St. Germain Act was an effort to save the S&L industry from the consequences of government regulation. During the inflation of the late 1970s (note to Krugman: thanks in part to the policies of Ronald Reagan’s political opponents) interest rates rose above the 5.25 percent cap federal regulations placed on what S&Ls could pay for deposits. As a result, deposits poured out of S&Ls into investments that paid higher market-based rates. (more…)