Reagan: The Life (102 page)

The sky didn’t catch fire, but the stock market imploded. The
Dow Jones average lost 6 percent the first week in October, then 12 percent more the next week. On a single day—Friday, October 16—the Dow
plunged 108 points. Greenspan and the rest of the country held their collective breath waiting for the markets to reopen on Monday.

The early news that day was grim. The Dow fell another 200 points in morning trading. Greenspan was scheduled to speak in Dallas, and he boarded a plane to fly west. For three hours he was out of touch. His first question on landing was how things had ended on Wall Street. “Down five-oh-eight,” his Dallas host, from the local branch of the Fed, replied.

Greenspan sighed relief, thinking that a loss of 5.08 was far better than he could have expected. But the look on his host’s face revealed that the news was not good but very bad: the Dow had fallen 508 points. This was the largest one-day loss in Wall Street’s history, bigger than any single day’s beating in the crash of 1929. Trillions of dollars had vanished in the blink of an eye.

Greenspan at once appreciated the danger. He had studied the 1929 crash and the ensuing depression, and he knew what the Fed had done wrong. He determined not to repeat the mistakes of his predecessors. “I went straight to the hotel, where I stayed on the phone into the night,” he recalled. “The Fed’s job during a stock-market panic is to ward off financial paralysis—a chaotic state in which businesses and banks stop making the payments they owe each other and the economy grinds to a halt.” The senior people Greenspan spoke with shared his understanding of the crisis and the appropriate remedies. But some of the younger people, shaped more by the
inflation of the 1970s than the depression of the 1930s, counseled caution. One suggested that the Fed wait and see what was going to happen.

“Though I was new at this job, I’d been a student of financial history for too long to think that made any sense,” Greenspan recounted. “It was the one moment I spoke sharply to anybody that night. ‘We don’t need to wait to see what happens,’ I told him. ‘We
know
what’s going to happen.’ Then I backed up a little and explained. ‘You know what people say about getting shot? You feel like you’ve been punched, but the trauma is such that you don’t feel the pain right away? In twenty-four or forty-eight hours, we’re going to be feeling a lot of pain.’ ”

Greenspan flew back to Washington, where Reagan was trying to shrug off the bad news from Wall Street. “
Are we headed for another great crash?” a reporter shouted at the president as he crossed the White House lawn. Reagan didn’t hear the question. “Are we headed for another great crash?” the reporter repeated. “Stock market,” another reporter offered.

“Oh, the stock market,” Reagan replied. “Well, I only have one thing
to say: I think everyone is a little puzzled, and I don’t know what meaning it might have because all the business indices are up. There is nothing wrong with the economy.”

So what had caused the collapse? the reporters asked.

“Maybe some people seeing a chance to grab a profit, I don’t know,” Reagan said. “But I do know this: More people are working than ever before in history. Our productivity is up. So is our manufacturing product up. There is no runaway inflation, as there has been in the past. So, as I say, I don’t think anyone should panic, because all the economic indicators are solid.”

Greenspan knew the president was trying to be reassuring. And under the circumstances he could hardly speak otherwise. But Reagan’s comments reminded him of similar comments by
Herbert Hoover amid the crash of 1929. He huddled with
James Baker, who had a longer record with the president than he did. The two agreed to approach Reagan together. “
We met with Reagan at the White House to suggest he try a different tack,” Greenspan recalled. “The most constructive response, Jim Baker and I argued, would be to offer to cooperate with Congress on cutting the deficit, since that was one of the long-term economic risks upsetting Wall Street.”

Reagan took the cue. He told reporters he was directing members of the administration to commence discussions with Congress on reducing the deficit. A reporter immediately queried, “
Are you willing to compromise on taxes, sir? Are you willing to compromise on taxes?”

Reagan initially hedged. “I presented in my budget a program that provided for $22 billion in additional revenue, which was not necessarily taxes,” he said. But, perhaps recalling the worry in the voices of Greenspan and Baker, he added, “I am willing to look at whatever proposal they might have.”

Reagan’s statement might have reassured the markets. Or it might have been regarded as political fluff. No one ever knew, for his offer wasn’t seriously tested. Greenspan and the Fed jawboned banks to keep lending and, most critically, flooded the financial system with new money. The markets stabilized, then began to recover the lost ground. As the memories of
Black Monday faded, so did the president’s inclination to meet Tip O’Neill halfway on the budget.

I
T WAS IN
many ways a crisis for the country,” Reagan later wrote of the events of that October. “But I confess this was a period of time in which I was more concerned about the possibility of an even greater tragedy in my own life than I was about the stock market.” Nancy’s routine mammogram had revealed a troubling lump.
John Hutton looked after Nancy’s health as well as Reagan’s; he had accompanied her to Bethesda, and he returned to the Oval Office to break the news to Reagan. It looked malignant, he said, but a biopsy would tell for certain. Reagan was stunned. “Afterward, John told Nancy I reacted to the news with an expression he would never forget,” Reagan recalled. “I think the president has always believed that nothing would ever happen to you,” Hutton said. Reagan added, “He was right.”

The not knowing was the hardest part. “The next ten days may have been the longest ten days of our lives,” Reagan wrote. The night before her surgery, Reagan helicoptered with Nancy to Bethesda. He returned to the White House but couldn’t sleep. He got up early to fly back to the hospital, but fog grounded his aircraft and he had to take a car. He reached the hospital in time only to kiss Nancy as she went into the operating room.

He and Nancy’s brother, Dick, who had driven in from Philadelphia, sat in the waiting room. “
Dick and I buried ourselves with newspapers and some sessions with assembled doctors keeping us posted on progress of surgery,” Reagan wrote that evening. In due course they learned the results. “The biopsy turned out to be traces of what they called a non-invasive carcinoma—very tiny. Decision was to perform moderate mastectomy.” Reagan and Dick were able to see Nancy after lunch. “As can be expected she’s feeling bad about losing a breast,” Reagan wrote. “We did
our best to let her know that was nothing compared to fact the cancer was gone. The doctors are delighted with the operation—it went so well and was so effective. There won’t be any chemotherapy or radiation treatment at all.”

In his memoir Reagan recounted the incidents of that day more emotionally. “
I looked up and saw
John Hutton and Dr.
Ollie Beahrs of the
Mayo Clinic approach us,” he wrote. “Their faces telegraphed the news that they were about to give me: Nancy had a malignancy and she and her doctors decided on a mastectomy. I know how desperately Nancy had hoped this would not be the case and I couldn’t reply to them. I just dropped my head and cried. After they left, I remained at the table, motionless and unable to speak.” He told of visiting Nancy in the recovery room. “She was asleep when Dick and I got there. Suddenly, as we were standing by her bed, there was a little movement of her body. Her eyes didn’t open, but I heard a tiny voice say, ‘My breast is gone.’ Barely conscious because of her anesthesia, Nancy somehow had sensed we were there. She was devastated by the loss of her breast—not because she was worried about herself, but because she was worried about me and how I would feel about her as a woman. ‘It doesn’t matter,’ I said. ‘I love
you
.’ Then I leaned over and kissed her softly, and repeated that it made no difference to me. But seeing that sadness in her eyes, it was all I could do to avoid breaking up again.”

Nancy suffered a second blow ten days later when her mother,
Edith Davis, died. The president learned first. “
I came home and told her the news,” he recounted in his diary. “It was heartbreaking.” The next day they flew to Phoenix. “
Upon arrival we went direct to the mortuary,” Reagan wrote. “We saw Deede looking calm and peaceful in her red robe. This was too much for Nancy who broke down sobbing and telling her how much she loved her. I told her Deede knows that now and that she really wasn’t in that room with her body but would be closer to her when we get to her apartment where her long time friends were waiting for us.”

The gathering with friends did help. “Nancy was in a better state of mind hearing all of us talk about Deede and our love for her,” Reagan wrote that evening. He flew back to Washington but returned to Phoenix for the funeral. Nancy asked him to deliver the eulogy. The service eased her pain a bit more. “
Friends from all over the country were on hand,” Reagan recounted. “It was most heart warming.”

T
HE
I
RAN-CONTRA SCANDAL
fairly paralyzed Reagan’s policies toward the Middle East and Central America. The administration’s violation of its own arms embargo against Iran shattered America’s credibility with much of the world, and its circumvention of Congress with regard to the contras lost it the support of even many Republicans on anything touching Nicaragua or its neighbors.

Oddly, though, this was a blessing. By precluding new initiatives toward other regions, Iran-contra drove Reagan to focus on what he had always considered the central issue of foreign policy: relations with the Soviet Union. He had nothing to look forward to in domestic politics; the Democrats in Congress would simply wait him out. And with foreign policy narrowed to the Soviet Union, there was no one to dance with but Gorbachev.

But there were observers watching from the sides of the room. In the spring of 1987 Reagan traveled to Europe for the annual meeting of the G7, in Italy. Some of America’s allies had been upset by Reykjavík, worried that the president was moving too quickly on arms control. “
Margaret Thatcher came down like a ton of bricks,”
Jack Matlock recalled. The British prime minister chided Reagan for even thinking of removing the nuclear deterrent that for decades had kept the peace in Europe. She reminded him that American nuclear weapons had the purpose of offsetting Soviet advantages in conventional forces. An arms treaty for Europe that didn’t address conventional weapons could leave the Soviets dangerously dominant. “
There was a real point at issue on arms control, on which I wanted to make my position clear,” Thatcher wrote later. “I
was not prepared to see British forces in Germany left without their protection and said so forcefully.”

Reagan reassured her that he wouldn’t weaken deterrence. He thought she was mollified. “
As usual we were on the same wave length,” he remarked in his diary.

He traveled from Italy to Berlin. The mayor of West Berlin had asked him to speak on the occasion of the 750th anniversary of the city. Reagan’s advisers wanted to hear something ceremonial and innocuous; with Congress still investigating the Iran-contra scandal, they thought the president should maintain a low profile.

Reagan took the opposite view. He insisted on reminding the world of the moral difference between the United States and the Soviet Union. Howard Baker read a draft speech that included a challenge to Gorbachev to tear down the
Berlin Wall. Supposing the phrase to be the work of an overzealous speechwriter, Baker sought to strike it out. The State Department seconded his caution. “
But Reagan was tough on it,” Baker recalled. The language was the president’s, he learned. “Those were Reagan’s words.” And Reagan didn’t want them tampered with. “He said leave it in.”

The words stayed in. “
General Secretary Gorbachev,” Reagan declared in front of the Brandenburg Gate, “if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!”

G
ORBACHEV GROANED, NOT
because he opposed what Reagan was demanding, but because he supported it. Gorbachev had moved cautiously after Reykjavík. His dual reforms,
glasnost and perestroika, inspired hope among Russian liberals even as they sowed fear in the old guard. Americans, including Reagan, had often assumed Soviet leaders ruled by diktat, and some, most notably Stalin, did. But Gorbachev lacked the stature of Stalin or even Brezhnev, and he had to feel his way forward. In certain respects he was weaker than Reagan, who at least had the popular mandate conferred by two election victories. Definitely no more than Reagan could he be seen as compromising national security in his relations with the United States.

Reagan and the Americans weren’t helping. “
In the best tradition of
its Wild West, America was again flexing its muscles and accusing the Soviet Union of all sins,” Gorbachev wrote in his memoirs. “The Americans (and not only they) employed the mass media to manipulate public opinion, to recapture the initiative in international affairs and to force us to accept their rules. I often discussed the issue with my colleagues. All of us felt that we must not surrender the initiative.”

But they did surrender something more valuable than the initiative. Gorbachev decided to unbundle the package deal he had offered at Reykjavík. He announced that the Soviet government was willing to negotiate a treaty on intermediate nuclear forces, or INF, separately from a strategic forces treaty. By delinking INF from what was being hopefully called a Strategic Arms Reduction Treaty, or START, he delinked INF from SDI as well. He had hoped to use Reagan’s desire for an
INF treaty to persuade him to drop SDI or confine it to the laboratory, but his strategy had fallen short. Moving on, he judged an INF treaty beneficial to the Soviet Union on its own merits. He privately assailed the decision by his predecessors to install the
SS-20 missiles that had triggered the whole intermediate forces controversy. “
Whatever the arguments advanced at the time to justify the deployment of such missiles, the Soviet leadership failed to take into account the probable reaction of the Western countries,” he wrote. “I would even go so far as to characterize it as an unforgivable adventure, embarked on by the previous Soviet leadership under pressure from the military-industrial complex.” The SS-20s threatened merely America’s allies, but the Pershings the Americans and NATO responded with threatened the Soviet Union itself. In fact they threatened the Soviet Union more gravely than any other American system, as they could reach their targets in as little as five minutes. “Hence I deemed it my duty to avert the deadly danger to our country and to correct the fatal error made by the Soviet leadership in the mid-1970s.”