According to Ronald Reagan, on Thursday, September 11, 1986, lunch with VP George H.W. Bush was followed by a lengthy cabinet meeting over proposed prohibitionist legislation.

Those were the heady days of “Just Say No,” when the Soviet Union was going broke and the Reagan administration was looking for ways to cut off all sources of income for the communist empire. The 9/11 drug bill in question contained items like using the military to invade other countries to enforce prohibition, an extra hundred million dollars to hire a drug army, Federal funds for state prisons, and “introduction of illegally obtained evidence at criminal trials in cases where a police officer acting in good faith makes an error in a warrantless search situation” … “forfeiture of substitute assets“,  “drug tests for all U.S. government employees in “sensitive” positions” and so on.  Reagan signed the resulting bill and called it a “National Crusade.” The way these laws are written, they only take effect a year after they are signed. You wouldn’t want cause and effect close enough together to draw attention to the financial charts.

The same sort of thing had been happening 55 years earlier, Herbert Hoover was president, beer was a major felony, several large banks in New York City had been involved in financing illegal alcohol and drugs, and Ronald Reagan had just turned 20.

President Wilson’s son-in-law, William McAdoo, suggested that Congress pass a law confiscating all money owned by drug and alcohol operators. Pres. Hoover had already more than doubled the number of convicts in prison for victimless crimes. Money the government didn’t have was being appropriated for building new prisons and hiring hordes of agents an prosecutors.

In June 1932 the Senate passed the revenue act containing the asset forfeiture provisions, along with major tax hikes. Hoover lost the election in November, but would still be president until March 4, 1933. In the meantime banks for closing right and left because citizens, fearful of asset forfeiture confiscations, we’re removing all of their deposits, thereby contracting the amount of available credit. Tax revenue fell by nearly half before anyone had ever heard of the Laffer curve. Stockbrokers were only making money by selling short. Huge bootlegging and narcotics trials of wealthy and important defendants from arrests made back in 1928-1932 were running out of delaying tactics.

Finally, on December 13, 1932, President Hoover signed executive order 5970 –Inspection of Income Tax Returns–which allowed States to look at Federal income tax forms filed by corporations within their borders.

This was done quietly, with no fanfare in the newspapers. Few even realized what had happened until Hoover’s press conference of January 20 subtly spilling the beans. This realization dawned ten days before Hitler was named Chancellor of the same German Reich Hoover had nurtured and protected by his moratorium on war debt collections (the Moratorium on Brains). The House promptly cut off all funding for wiretaps and entrapment buying. Corporations began withdrawing money from banks, and over the course of the following month every single bank in the United States shut down even before Franklin D Roosevelt was sworn in to become President for Life and declare a “holiday,” complete with fines, imprisonment and forfeiture language.

Religious conservatives have since that time pronounced the word “liberal” (in favor of repealing prohibition) the way their German counterparts pronounced the words “liberal” and “Jewish” (meaning laissez-faire).  In the rest of the English-speaking world, liberal still means the same thing that it meant–-even to religious conservatives–-in America before 1932.

For a detailed analysis of the Crash and Depression buy Prohibition and The Crash, live on Amazon Kindle in two languages–for the cost of a competent pint.

Prohibition and The Crash, on Amazon Kindle

Stay tuned for how these events relate to the Crash of 2007-8 and the ensuing Depression. Need an interpreter?
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