The Gulf War (1990–1991)

Causes

Invasion of Kuwait

On August 2, 1990, Iraqi armed forces invaded Kuwait, a very small, oil-rich country bordering southern Iraq, sparking the Gulf War. The conflict split the Arab community into anti- and pro-Iraq camps, involved the military commitment of a U.S.-led coalition of twenty-eight countries, and brought tremendous devastation to both Iraq and Kuwait. In addition to the loss of human life and billions of dollars, the toll of the crisis includes deep political divisions between Kuwait and Saudi Arabia on one side, and Iraq, Jordan, and the Palestine Liberation Organization (PLO) on the other.

Factors Leading to the Invasion

Iraq’s need for money and desire for power motivated the invasion of Kuwait. Iraq emerged from the Iran-Iraq War of the 1980s financially exhausted, carrying a debt of roughly $80 billion. Saddam Hussein (1937–2006), Iraq’s president, planned to service the debt—and fund the country’s high-tech defense industry, food imports, and reconstruction—with oil revenue. Unfortunately, his plan collapsed when oil prices fell from $20 to $14 a barrel in the first half of 1990. Hussein charged that Kuwait and the United Arab Emirates had exceeded their Organization of Petroleum Exporting Countries (OPEC) quotas, which drove down the price of oil. Hussein accused the United States of keeping Iraq weak by encouraging the overproduction. Finally, he characterized the Kuwaiti drilling as an act of war. He demanded that the price of oil be raised to $25 a barrel, that Kuwait forgive $10 billion of debt incurred during the Iran-Iraq War, and that the Gulf states give Iraq financial aid in the amount of $30 billion. Because Iraq historically considered Kuwait a part of its territory, Hussein also demanded Kuwait pay $2.4 billion for Iraqi oil that he felt Kuwait illegally pumped from the Rumaila oil field, which straddles the Iraq-Kuwait border.

Hussein also wanted to lease the two uninhabited Kuwaiti islands of Warbah and Bubiyan, which would provide Iraq secure access to the Persian Gulf. Because of Bubiyan’s close proximity to Kuwait City and previous border disputes between Iraq and itself, Kuwait was hesitant to negotiate with Iraq. Despite its debt, Iraq—a country of seventeen million people—had emerged militarily strong from the Iran-Iraq War. Iraq claimed one million experienced soldiers, 500 planes, and 5,500 tanks, and the capability to develop chemical, biological, and nuclear weapons. As tensions between Iraq and Kuwait increased, officials in the West and Israel grew alarmed. Hussein grew suspicious of Western media’s condemnation of Iraqi human rights violations, especially against the country’s Kurdish population. On April 2, 1990, Hussein threatened to “burn half of Israel” with binary chemical weapons if it attacked Iraq, as it had in 1981. The threat resulted in an outpouring of Arab sympathy. Because Israel had annexed Jerusalem and the Golan, invaded Lebanon, bombed PLO headquarters in Tunis, and suppressed a civilian uprising in the West Bank and Gaza since 1987—all without Arab response—Hussein was viewed as something of a hero. By calling on a potent mixture of themes, including Western imperialism, Arab impotence, the Palestinian cause, and Islam, Hussein successfully incited Arab anger, alienation, and support.

Iraq Invades Kuwait

Although relations between the two countries had been deteriorating for some time, it came as a surprise when Iraq suddenly invaded Kuwait on the morning of August 2, 1990. Within a few hours, Hussein’s army had occupied the entire country. Meeting little resistance, the forces killed hundreds of Kuwaitis and jailed and tortured hundreds more. The Iraqis looted the entire country, making off with furniture, automobiles, gold reserves, industrial equipment, and treasures from the Kuwaiti museum. Banks were robbed of their deposits, and schools and hospitals were stripped of their equipment. The occupation was complete.

Arab reaction to the invasion was split. The anti-Iraq group was made up of Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Oman, Egypt, Syria, Morocco, Lebanon, Djibouti, and Somalia; Jordan, the PLO, Yemen, Sudan, Libya, Tunisia, Algeria, and Mauritania were either neutral or pro-Iraq. The split was revealed in an August 3 meeting of the Arab League, who quickly lost hold of the crisis when a U.S.-led coalition of twenty-eight countries made the confrontation a worldwide concern. U.S. President George H. W. Bush (1924–) was quick to galvanize opposition to Iraq. On the day of the invasion, the United Nations (U.N.) Security Council condemned Iraq’s actions and demanded its immediate and unconditional withdrawal.

Over the next few days, the Soviet Union and the Organization of Islamic Conference joined in the condemnation. The U.N. imposed economic sanctions on Iraq, but the most significant reaction was Saudi Arabia’s August 6 agreement to allow U.S. troops and aircraft on its soil after being shown U.S. satellite photographs of Iraqi troops near Saudi borders. The deployment of U.S. troops to Saudi Arabia was known as Operation Desert Shield. Despite several diplomatic missions by various world leaders, Saddam Hussein refused to withdraw from Kuwait. Bush gave the Iraqi leader until January 15, 1991, to leave Kuwait or face Western military forces. Hussein stood firm. On January 16, U.S. and allied forces launched Operation Desert Storm with air attacks on Iraq and on Iraqi positions in Kuwait.

The Gulf War Ends

Iraq responded by firing Scud missiles at Tel Aviv, Israel. The attack damaged hundreds of buildings and killed many people. Iraq also fired missiles at Saudi Arabia and invaded its borders in late January. After a number of unsuccessful diplomatic attempts and another ultimatum by President Bush, coalition ground forces were launched into Iraq on February 24. Four days later, Kuwait was liberated. Before accepting U.N. Security Council resolutions and agreeing to a cease-fire on February 28, Iraq set fire to almost seven hundred Kuwaiti oil wells.

The Gulf Crisis destroyed Iraq’s infrastructure and resulted in the loss of tens of thousands of Iraqi people. Kuwait, though, suffered the ravages of invasion, occupation, and war. The looting and destruction cost $65 billion and reconstruction was estimated at another $25 billion. Because some of the 350,000 Palestinians living in Kuwait supported the Iraq army, hundreds of Palestinians were tortured and killed after the war. Their community lost roughly $8 billion dollars and was reduced in size to about 30,000 after the majority resettled in Jordan. One estimate puts the cost of the Gulf War at $640 billion, but the financial cost pales in comparison to the political divisions the crisis caused.

Major Figures

Saddam Hussein

Saddam Hussein (1937–2006) was the president of Iraq from 1979 until 2003, when the United States overthrew his government after he refused to cooperate with United Nations’ weapons inspectors seeking alleged weapons of mass destruction. He was born on April 28, 1937, to a poor, landless peasant family in the village of Ouja, near Tikrit in northern Iraq. His mother, Subha Tulfah al-Mussallat, was supposedly related to the family of the prophet Muhammad. His father died just before he was born. At the age of ten, Hussein decided to attend school in a major act of rebellion. When his mother and stepfather tried to dissuade him, Hussein went to live with his uncle, Khayrallah Tulfah, who went on to become a tremendous influence on Hussein’s life.

Hussein’s Rise

In 1955, Hussein began secondary studies in Baghdad where he became an antigovernment activist. In 1957, at the age of twenty, Hussein became a low-ranking member of the underground Ba’ath (Renaissance) Party, an organization based on a pan-Arab, secular socialist ideology in which the party assumes dominance in all aspects of public life. Two years later, in the fall of 1959, the Ba’ath Party chose Hussein to join a small group of party loyalists given the task of assassinating Iraqi General Abd al-Karim Qasim (1914–1963). Although Hussein claimed to have led the tank assault on the presidential palace dressed in military garb, evidence shows that he did not. Hussein was wounded by a bullet and fled to Syria when the assassination attempt failed. In Damascus, the Ba’ath leadership greeted him with a hero’s welcome. Michel Aflaq (1910–1989), the Syrian Christian founder and chief ideologue of the Ba’ath Party, met personally with Hussein and later promoted him to full party membership. In 1959, Hussein moved to Cairo, Egypt, finished high school, and started studying law.

In the mid-1960s, Aflaq bestowed upon Hussein the appointment of Regional Command, the highest decision-making body of the Iraqi branch of the Ba’ath. Until his death in 1989, Aflaq was incredibly influential in the Ba’ath’s Iraqi faction. Because of his standing within the party, his relationship with Hussein served to legitimize his protégé’s leadership.

On February 9, 1963, General Qasim was overthrown with the help of Ba’ath loyalists. After the overthrow, Hussein left Cairo for Baghdad and became involved in internal security. That same year, Hussein married Sajida, his maternal cousin and the daughter of the uncle who raised him. Hussein and his wife eventually had five children: Uday, Qusay, Raghda, Rana, and Hala.

After the overthrow, the Ba’ath Party came to power and almost immediately split into rightist, leftist, and centrist factions. The centrist faction was led by then-prime minister Brigadier General Ahmad Hassan al-Bakr (1914–1982), a relative of Hussein’s from Tikrit. Hussein aligned himself with this faction. In late 1963, just months after the overthrow of General Qasim, the Ba’ath Party was removed from power by President Abdul Salam Arif (1921–1966), a Nasserist Party figurehead. In the autumn of 1964, the Ba’ath planned a coup against Arif, but the plan was exposed. Hussein was arrested and jailed in Baghdad that October, but escaped prison in July 1966. Two years later, the Ba’aths ousted new President Abdul Rahman Arif (c. 1916–1966), who had succeeded his younger brother after the latter was killed in a helicopter crash. In 1968, the new Ba’athist president, General al-Bakr, made Hussein the assistant secretary general of the party and deputy chairman of the Revolutionary Command Council (RCC), the highest decision-making institution in the land. Between 1969 and 1979, Hussein used his power to oust and outmaneuver enemies and opponents. On July 16, 1979, he pushed al-Bakr from office, executed party rivals, and took over the positions of president and RCC chair. Within a few weeks, roughly five hundred high-ranking Ba’athists had been executed for suspected disloyalty to Hussein.

Hussein in Charge

On September 22, 1980, Iraqi aircraft invaded Iran over a longtime dispute for sovereignty rights to the Shatt al Arab waterway and related border disagreements. The invasion evolved into a full-scale war that lasted eight years and cost Iraq roughly one percent of its total population. During the ensuing Iran-Iraq war, Iraq incurred an estimated debt of $80 billion. After the war ended in stalemate in 1988, the Iraqi people faced rapidly rising prices, continued political repression, and increased unemployment. Two years later, in August 1990, Iraq invaded Kuwait, the Delaware-sized country that borders Iraq’s southern tip. This invasion inspired a U.S.-led coalition to launch a massive air war followed by a short ground war against Iraq. Iraq was ousted from Kuwait and forced to destroy its nuclear, chemical, and biological weapons programs. Although large quantities of chemical weapons were destroyed over the next eight years, the international community continued to suspect that Hussein was hiding others. By late 1998, U.N. weapons inspectors had not found any, but Hussein refused to let them inspect the presidential palaces and later refused to permit any further inspections. In October of that year, U.S. President Bill Clinton (1946–) signed into law the Iraq Liberation Act, which committed the United States to overthrowing Hussein.

War in Iraq

Following the September 11, 2001, attacks on the Pentagon and World Trade Center in the United States, President George W. Bush (1946–) feared that terrorists equipped with Iraqi weapons of mass destruction might target the United States. He demanded that Saddam Hussein cooperate with new weapons inspectors sent to Iraq in 2002. When no weapons were found, Bush issued the ultimatum that Hussein either completely disarm or voluntarily leave Iraq. When Hussein refused to leave, tensions mounted until, on March 19, 2003, the United States began a war against Iraq with a “decapitation” strike intended to assassinate Hussein. The Iraqi president survived and went into hiding for nine months, after which time coalition forces found Hussein hiding on a sheep farm near his ancestral home of Tikrit.

Hussein’s Last Days

Hussein spent seven months as a U.S. prisoner of war before his legal custody was transferred to the interim Iraqi government in July 2004. Preliminary charges against Hussein, mainly pertaining to genocide, war crimes, and crimes against humanity committed during his presidency, were outlined while he was arraigned in an Iraqi court days after his transfer. Specific atrocities Hussein was accused of include the slaying of religious figures in 1974, the gassing of Kurds in 1988, the killing of the Kurdish Barzani clan in 1983, the invasion of Kuwait in 1990, and thirty years of executions of various political opposition leaders. He and members of his regime were tried before a special Iraqi war-crimes tribunal that Hussein interrupted with walkouts and hunger strikes. Finally, by late December 2006, the former Iraqi president was found guilty of crimes against humanity. He was executed by hanging on December 30, 2006.

George H. W. Bush

George Herbert Walker Bush (1924–) was the forty-first president of the United States and the leader who oversaw the Gulf War. The Republican president served from 1989 to 1993, years marked by international conflict and dramatic change. In the late 1980s and early 1990s, after forty years of tension, the Cold War came to an end. As a result, the Communist empire broke up and the Berlin Wall fell in 1989. With the long-familiar danger from Eastern Europe removed, Bush responded swiftly and decisively when Iraqi President Saddam Hussein invaded Kuwait in 1991, personifying the emerging threat from the Middle East. After American and Allied troops defeated Saddam and freed Kuwait, Bush experienced a period of unprecedented popularity. Because of a faltering economy, rising violence in America’s inner cities, and continued high-deficit spending, Bush lost his bid for reelection in 1992. In retirement, Bush has kept a relatively low profile.

Bush’s Early Years

The second of five children, George H. W. Bush was born in Milton, Massachusetts, on June 12, 1924, and was raised in Greenwich, Connecticut. His father, Prescott Sheldon Bush, was an investment banker before serving as a Republican senator from Connecticut from 1952 to 1963. After Bush graduated from the prestigious Phillips Academy in Andover, Massachusetts, in 1942, he was accepted at Yale University. Instead of attending Yale, though, Bush enlisted in the U.S. Naval Reserve. By 1943, Ensign Bush was the youngest fighter pilot in the Navy. After a mission over the South Pacific in which he was shot down on September 2, 1944, Bush received the Distinguished Flying Cross. On January 6, 1945, Bush married Barbara Pierce, daughter of the publisher of McCall’sand Redbook magazines. Their family eventually grew to include six children, one of whom died of leukemia in 1953.

Bush entered Yale University in the fall of 1945 and graduated three and a half years later with a degree in economics. After graduation, Bush moved his family to Texas where he took a job in the oil business. By 1954, he was president of the Zapata Offshore Company, an outfit that drilled for oil in the Gulf of Mexico.

Bush Enters Politics

Bush was elected chairman of the Harris County Republican Party in 1962. In 1964, he ran for the Senate and lost, but was elected to the House of Representatives in 1966. His two terms in Congress were marked by a largely conservative voting record, though he did support several liberal social measures, including an open-housing bill, abolition of the military draft, and the lowering of the voting age to eighteen.

With the encouragement of then-president Richard M. Nixon (1913–1994), Bush ran for the Senate in 1970 but was defeated by Democrat Lloyd Bentsen (1921–2006). That December, Nixon named Bush the U.S. ambassador to the United Nations. Three years later, during the height of the Watergate scandal, Bush became chairman of the Republican National Committee. When Nixon’s personal involvement in the scandal became known, Bush urged the president to resign.

Nixon’s successor, Gerald R. Ford (1913–2006), made Bush head of the U.S. Liaison Office in the People’s Republic of China in 1974. In 1975, Ford called Bush home and appointed him head of the Central Intelligence Agency (CIA). At the time, the agency was under fire from Congress for engaging in covert activities that overstepped the bounds of its legal mandate. Bush won high marks for improving agency morale and for helping draft an executive order designed to prevent future abuses. When Democrat Jimmy Carter (1924–) was elected in November 1976, Bush resigned his position with the CIA.

The Vice Presidency

When Bush sought the Republican presidential nomination in 1980, he was seen as an attractive moderate alternative to ultraconservative Republican candidate Ronald Reagan (1911–2004). When Bush fell behind in the primary, he dropped out of the race. Despite their differences, Bush accepted Reagan’s offer of the vice presidential slot. He went on to serve two terms as Reagan’s vice president, loyally supporting the Reagan agenda in public, but softening the president’s stand on certain issues behind the scenes.

The Presidency

In 1988, despite allegations that he had known more than he admitted about the 1987 Iran-Contra political scandal, George Bush was elected president. Widely viewed as a foreign-policy president with little interest in domestic issues, Bush had the good fortune of being in office when the Cold War ended. On the domestic front, Bush worked with Congress to decrease the federal budget deficit while dealing with an inherited scandal from the Reagan administration. The scandal involved the Department of Housing and Urban Development (HUD) and the agency’s former secretary, Samuel R. Pierce Jr. It was revealed that Pierce had engaged in favoritism toward prominent Republicans and had influenced peddling. Pierce allegedly wasted millions, perhaps billions, of dollars by mismanaging agency funds.

On the international front, Bush’s greatest challenge came when Iraqi President Saddam Hussein invaded Kuwait. Bush rallied the global community to condemn Hussein’s actions, which transformed the Arab conflict into an international one. When Operation Desert Storm ground forces defeated the Iraqis and freed Kuwait, Bush’s approval rating soared. The Gulf War had the effect of boosting patriotic fervor, thanks to George Bush. His seemingly unstoppable popularity was short-lived, however. Economic and domestic issues persuaded voters to elect Democrat Bill Clinton in 1992.

Life After Politics

Once retired, Bush kept a low profile. He preferred to travel and spend time with his family, though he did make the news when he became the first American president to jump out of an airplane at the age of seventy-two. In April 1997, Bush received an honorary doctorate from Hofstra University in Hempstead, Long Island. A year later, he coauthored A World Transformed, a memoir of his foreign-policy experiences as president. In 1999, Bush’s autobiography, All the Best, George Bush, was published. In 2000, Bush’s eldest son, former Texas governor George W. Bush (1946–), became the forty-third president of the United States. After the natural and humanitarian disasters of the Indian Ocean Tsunami in 2004 and Hurricane Katrina in 2005, Bush teamed with fellow former-President Bill Clinton to raise money for relief.

Dick Cheney

Richard Bruce Cheney(1941–) is widely known for serving both Bush presidencies, as secretary of defense in the first and vice president in the second. Between administrations, Cheney acted as chief executive at the Halliburton Company, a company he helped to build into one of the world’s largest oil-drilling, engineering, and construction service providers. Cheney was also elected to the U.S. House of Representatives to represent Wyoming and served on the House Intelligence Committee.

Cheney’s Early Years

Richard Bruce “Dick” Cheney was born in Lincoln, Nebraska, on January 30, 1941, and was raised in Casper, Wyoming. He attended the University of Wyoming, where he finished his bachelor’s degree in 1965 and his master’s in 1966, and went on to study political science at the University of Wisconsin at Madison. Cheney left graduate school in 1968 without finishing his Ph.D. He moved to Washington, D.C., that year and became a staff assistant to Representative William Steiger (1938–1978), a respected Republican from Wisconsin. The job led to a series of appointments in the Nixon administration, including special assistant to Donald Rumsfeld (1932–), director of the Office of Economic Opportunity. Rumsfeld promoted Cheney to deputy when the former became White House counsel. When Rumsfeld became director of the Cost of Living Council, he appointed Cheney his assistant director of operations. These positions, held from May 1969 to March 1973, gave Cheney an enviable opportunity to learn government from the inside. Then, Watergate changed his path. Because Cheney had limited private employment experience, and because Watergate Washington was no place for a young man without a law degree, he decided to seek work in the private sector. In 1973, he became vice president of the investment advisory group, Bradley, Woods, and Company.

The Ford Administration

In 1974, Donald Rumsfeld invited Cheney to join him on President Gerald Ford’s transition staff. As deputy assistant to the president, Cheney became Rumsfeld’s assistant again, albeit on a much higher level. It did not take long for Cheney’s passion for anonymity and pragmatic conservatism to earn him positions as assistant to the president and chief of staff when Rumsfeld became head of the Department of Defense. Cheney served Ford from November 1975 until the end of his administration in January 1977.

Congressman Cheney

When Democrat Jimmy Carter defeated Gerald Ford and became president in 1977, Cheney briefly returned to private life in Wyoming. Then, in 1978, despite being stricken by a heart attack during his campaign, Cheney was elected to the U.S. House of Representatives. From January 1979 until March 1989, Congressman Cheney defined himself as a compassionate conservative and a natural leader. Well liked by his constituents as well as his party, Cheney captured Wyoming’s seat five times. In his second term, Cheney was elected chairman of the Republican House Policy Committee, an unprecedented feat for a sophomore representative. Cheney benefited from the return of the Republicans to the White House under Ronald Reagan. He supported Reagan’s plan for defense buildup and the president’s foreign policy on Afghanistan and Nicaragua. As a respected Congressman, Cheney was the obvious choice for service on the House Select Committee to Investigate Covert Arms Deals with Iran. As ranking Republican and co-chairman of the committee, he vehemently disagreed with the majority report and defended the Reagan administration on the Iran-Contra episode of 1987.

Cheney as Secretary of Defense

Ten years of dedicated service in the House made Cheney a respected national figure. Although he never served in the military and had little experience dealing with the Pentagon, he was appointed secretary of defense. The uncommon perspective he gained from his executive and legislative experience was seen as compensation for those shortcomings. Cheney quickly established control over the massive military-civilian bureaucracy. But his most important test came in 1990 when Saddam Hussein invaded Kuwait.

After President George H. W. Bush committed troops to defend Saudi Arabia, Cheney was responsible for the massive organization of personnel and supplies to the Persian Gulf. American troops joined coalition forces in pursuit of the restoration of the Kuwaiti monarchy as well as the protection of U.S. interests. On January 17, 1991, the forces began a violent air strike against Iraq followed by a ground attack on February 24. This second attack destroyed the bulk of Iraq’s military forces in less than 100 hours. Cheney and U.S. Chief of Staff Colin Powell (1937–) became popular heroes when Iraq surrendered and withdrew from Kuwait. After the conflict, Cheney began reducing the U.S. military by closing military bases, among other things. The decision was unpopular, but his solid reputation and stellar professionalism allowed him to proceed with this and other controversial measures. He remained secretary of defense until Democrat Bill Clinton became president in 1994. Cheney left Washington again, this time to become chief executive of Halliburton Company. In 1999, after Cheney transformed the organization into one of the world’s largest oil-drilling, engineering, and construction service providers, Halliburton acquired Dresser Industries Incorporated, which increased the former company’s $20 million revenue.

Cheney as Vice President

In 2000, Texas Governor George W. Bush invited Cheney to be his running partner in the presidential campaign. The two were sworn in as president and vice president, respectively, on January 20, 2001. During their first term in office, the Bush administration was accused of being involved in the Enron scandal and other scandals related to the country’s rapid economic decline. It denied any and all accusations. In March 2003, the United States invaded Iraq against a firestorm of criticism. In the following months, the vice president lashed out at critics, calling their arguments against the war dangerous and naïve. Bush and Cheney defeated Democratic presidential candidate John Kerry in 2004 after a vitriolic campaign. The first several years of the second administration were marked by war in Iraq, an investigation into the September 11 attacks, and scandals involving Cheney’s chief of staff, I. Lewis “Scooter” Libby, and former Central Intelligence Agency officer Valerie Plame.

Colin Powell

Four-star General Colin Luther Powell (1937–) was chairman of the Joint Chiefs of Staff during the Gulf War and secretary of state in George W. Bush’s first term—he was the first African American to hold either position. He achieved national and international prominence during the Persian Gulf War in 1990 and 1991. After the war, he was considered a good candidate for vice president by Democrats and Republicans alike. Powell resisted being pushed into electoral politics.

Powell’s Early Years

Powell was born in Harlem, New York, on April 5, 1937, to Luther and Maud Ariel McKoy Powell. His parents had immigrated from Jamaica to Manhattan’s garment district. The younger of two children, Powell was raised in the South Bronx in a loving and close-knit family. After graduating from high school, Powell went on to New York’s City College where he earned a degree in geology in 1958. He was a standout in the school’s Reserve Officers’ Training Corps (ROTC) unit, serving as commander of the precision drill team and graduating as a cadet colonel, the highest possible rank. After graduation, Powell joined the Army and was sent to West Germany. In 1962, he began the first of two one-year tours of duty in Vietnam, serving as an advisor to a Vietnamese infantry battalion. During this tour, Powell earned a Purple Heart after being injured by a Viet Cong trap that sent a stake through his foot. In his second tour, Powell served as an infantry officer at the battalion level from 1968 to 1969. On this tour, Powell was awarded a Soldier’s Medal after rescuing fellow soldiers from the fiery wreck of a downed helicopter. When he returned to the United States, Powell entered George Washington University and completed an MBA in 1971.

Powell Begins His Political Career

In 1972, Powell received a prestigious White House fellowship in the Office of Management and Budget (OMB). During his tenure there, Powell met two men—Caspar Weinberger (1917–2006), the OMB’s director; and Frank Carlucci (1930–), the OMB’s deputy director and later President Reagan’s national security advisor—who would figure prominently in his future. Powell served as Carlucci’s assistant and impressed his boss with his competence and efficiency. Over the next fifteen years, Powell went back and forth from military duty to political appointments. In 1976, he graduated with distinction from the National War College. In 1979, he served as executive assistant to the secretary of energy, after working as senior military assistant to the deputy secretary of defense.

In mid-1983, Secretary of Defense Weinberger invited Powell to become his senior military assistant. Powell agreed and excelled as an organizer and a peacemaker who fostered cooperation between competing agencies and individuals. Powell was one of only five people in the Pentagon who knew about the National Security Council’s secret efforts to secure the release of American hostages in the Middle East by selling arms to Iran, then channeling the profits to Nicaraguan contra forces fighting the Sandinistas. Unlike other players in the so-called Iran-Contra affair, Powell was honest about what he knew, which enhanced rather than compromised his reputation for integrity and candor when his role in the scandal came to light.

In 1986, Powell left Washington to assume a prestigious and much-coveted position as commander of the V Corps in Frankfurt, West Germany, which put him in charge of roughly 72,000 troops. Six months later, in January 1987, Frank Carlucci asked Powell to return to the capital as his assistant. Powell reluctantly took the job, but only after President Reagan personally asked him to do so. The first order of business was to repair the National Security Council’s damaged credibility. Carlucci and Powell reorganized the staff and changed procedures to reduce the risk of future scandals. When Carlucci replaced Weinberger as secretary of defense, Powell was promoted to succeed Carlucci as head of the National Security Council. His selection was met with universal acclaim, unlike many Washington appointments. Powell served as national security advisor throughout the remainder of Reagan’s administration, which allowed him to play a key role in several significant events. In the first, Powell helped persuade Reagan not to use military force to oust Panamanian dictator Manuel Noriega (1938–) and not to pressure Congress for continued support of the Nicaraguan contras in their struggle with the Sandinistas. Powell was also the chief organizer of Reagan’s last two meetings with Soviet leader Mikhail Gorbachev (1931–), which led to a major nuclear arms treaty. He became chairman of the Joint Chiefs of Staff under President Bush in 1989—the youngest man to ever hold that position.

The Persian Gulf War

When Saddam Hussein invaded Kuwait in August 1990, Powell’s duties shifted to include developing actual military strategies. When the order was given to engage Iraq militarily, Powell directed General H. Norman Schwarzkopf (1934–) to integrate communications, operations, and authority of the multinational force. But Powell planned all of the land, sea, and air campaigns and advised President Bush on the many political decisions that had to be made. The success of Operation Desert Shield and Operation Desert Storm, which led to Hussein’s withdrawal and the liberation of Kuwait, made heroes of many. Powell stood tallest among them. His ability to balance U.S. political objectives against military realities and to handle both with exceptional skill and diplomacy restored public confidence in the armed forces. Powell’s rise from humble beginnings and his unapologetic patriotism appealed to Americans of all races and ethnicities. As a result, he was urged to run for political office. But Powell, an independent who had served both Republican and Democratic administrations with distinction, harbored no political desires.

Powell was reappointed to a second two-year term as chairman of the Joint Chiefs in October 1991, after which time he retired from the military. He spent the next several years chairing organizations that sought to build and strengthen youth competence and character, namely America’s Promise—The Alliance for Youth. To make a difference in the lives of American children, Powell enlisted the time and financial support of companies, nonprofit organizations, and individuals. He returned to political life in 2000, when president-elect George W. Bush nominated Powell to be the sixty-fifth secretary of state. His four-year tenure was made contentious by the war in Iraq. Powell opposed invading Iraq to eliminate the banned weapons the country was thought to possess, but was outnumbered by more hawkish members of the Bush administration. Despite his private reservations, Powell advanced Bush’s policy, which earned the secretary of state criticism from both sides. Republicans accused him of not working hard enough to build international support for the war, while Democrats blasted him for supporting a policy he privately opposed. Powell stepped down as secretary of state a few days after Bush was reelected in November 2004.

Since retiring from public life, Powell has maintained a busy speaking schedule, continued working with America’s Promise, became a strategic limited partner in a Silicon Valley venture capital firm, and won the 2005 Alexis de Tocqueville Prize for his 1995 memoir, My American Journey.

H. Norman Schwarzkopf

General H. Norman Schwarzkopf (1934–) is best remembered for planning the strategic military strike that crippled Iraqi forces in the Persian Gulf War. The four-star Army general earned the moniker “Stormin’ Norman” during the conflict.

Schwarzkopf’s Early Years

H. Norman Schwarzkopf Jr. was born on August 22, 1934, in Trenton, New Jersey. His father, General Herbert Norman Schwarzkopf (1895–1958), was between Army assignments overseas in World War I and World War II when his only son was born. During World War II, the elder Schwarzkopf was sent to Iran to establish a police force for the Shah. Young Norman joined his father in Tehran months before his mother and sisters could join them. Schwarzkopf was impressed to see that his father’s subordinates admired the man as much as he did. But his father was not his only role model. Schwarzkopf also admired Alexander the Great, Ulysses S. Grant, and Creighton Abrams, the man who later served as Schwarzkopf’s commander in Vietnam. The young man followed his father on military assignments in Italy, Germany, and Switzerland for five years. Schwarzkopf credits his experience of interacting with Iranians, displaced Jews, Germans, Italians, Yugoslavians, and people of other nationalities and ethnic backgrounds for broadening his mind and attitude about people.

Schwarzkopf Begins His Military Career

Schwarzkopf eventually returned to the United States and entered West Point, just as his father had done. After graduating as an infantry second lieutenant in 1956, he attended the Infantry Officer Basic course and Airborne School at the Infantry School at Fort Benning, Georgia. In 1957, Schwarzkopf was sent to Fort Campbell, Kentucky, were he became platoon leader. Later, he became an executive officer in the 187th, the Second Airborne Battle Group. He served in that capacity for two years. In 1959, he was sent to Germany to serve as platoon leader in the Sixth Infantry for a year, followed by a stint as aide-de-camp to the commanding general of the Berlin Command. He returned to Fort Benning in September 1961, to continue advanced infantry officer training, then entered the University of Southern California where he pursued a master’s degree in guided missile engineering, which he completed in 1964. After graduation, Schwarzkopf returned to West Point where he became an instructor in the department of mechanics.

In June 1965, he was sent to Vietnam with an airborne brigade as an advisor. He served his three hundred days of duty, then returned to West Point where he resumed his teaching post. The following year, Schwarzkopf became a student again, this time at General Staff College at Fort Leavenworth, Kansas. In December 1969, he was sent on a second tour of duty to Vietnam where he served as commander of the First Battalion, Sixth Infantry, 198th Infantry Brigade of the Twenty-third Infantry Division. He was awarded two Purple Hearts and three Silver Stars, but he returned home from Vietnam incensed over Washington’s handling of its part of the war effort. He believed the outcome of the war was not a military defeat, but rather a defeat by politicians on the media’s battlefields. Schwarzkopf alternated between administrative work and advanced military and technical training in Washington over the next several years. In October 1974, he was promoted from lieutenant colonel to deputy commander of the 172nd Infantry Brigade in Fort Richardson, Alaska. In 1975, he was promoted to full colonel and was later moved up to commander of the First Brigade, Ninth Infantry Division, in Fort Lewis, Washington. He held the post for almost two years

Becoming General

Schwarzkopf served for two years at the Pacific Command post at Camp H. M. Smith in Hawaii from 1978 to 1980. After this appointment, he returned to Washington and was made brigadier general and sent to work as assistant division commander of the Eighth Infantry Division in Europe. He held this post for two years, after which time he returned to Washington and worked an administrative job for a year before being promoted to major general and sent to Fort Stewart, Georgia, to serve as deputy commanding general of the Twenty-fourth Infantry Division. There, he had the high-visibility post as deputy commander of the U.S. Invasion of Grenada in 1983. Schwarzkopf’s contribution to the conflict gained the attention of Pentagon officials who appointed him commanding general of the I Corps at Fort Lewis in 1986, a post he assumed with a third star on his shoulder. In August 1987, Schwarzkopf returned to Washington as senior Army member of the Military Staff Committee of the United Nations. Thirteen months later, he was made a four-star general, moving to the top of the U.S. Central Command (CENTCOM).

Directing the Persian Gulf War

One of Schwarzkopf’s first projects as four-star general and commander in chief at CENTCOM was to figure out the most likely war scenario involving U.S. troops in the Persian Gulf. Because the Soviet threat was in decline, Schwarzkopf concluded that the Middle East posed the greatest threat. After consulting with his superiors at the Pentagon, he conceived a plan to deal with the possibility of an Iraqi invasion into Kuwait and tested it in July 1990. The possibility quickly became a reality—Iraq invaded Kuwait on August 2. By August 17, the first U.S. troops were sent to Saudi Arabia to defend that country from a threatened invasion by Saddam Hussein’s Iraqi army. Over the next several months, more than 500,000 U.S. soldiers were deployed to the region, followed by another 25,000 troops representing coalition countries. More than one hundred ships and twelve hundred aircraft were used to intimidate and finally defeat Hussein. Schwarzkopf oversaw the entire operation, dubbed Operation Desert Shield. His impressive diplomatic and language expertise were put to the test in the multinational and multicultural climate of the coalition army.

Because Hussein chose to ignore a U.N.-endorsed withdrawal deadline, Operation Desert Shield became Operation Desert Storm in January 1991. The goal of the stepped-up operation was to eject Iraqis by force through a well-coordinated plan of air strikes meant to sever Iraqi supply lines, disrupt the Iraqi command and control network, damage weapons facilities, and generally weaken Hussein’s fighting unit. Despite the success of the air mission, Schwarzkopf and Chairman of the Joint Chiefs of Staff Colin Powell knew that a ground attack was necessary to complete the mission. The two conceived of a plan that involved a faked amphibious assault on the Kuwaiti coast. It successfully distracted Hussein’s troops from their western flank, which allowed 200,000 allied troops and hundreds of tanks to overwhelm the enemy. By February 28, just five days after the ground war started, the conflict was over.

Schwarzkopf was greeted with a hero’s welcome when he arrived back in the United States on April 21, 1991. Victory parades were organized in his honor and he received a flood of awards and honors, including the Presidential Medal of Freedom, the French Legion of Honor, and honorary knighthood by England’s Queen Elizabeth II. He retired from the military later that summer.

Major Battles

Air War

United States Air Force leaders responded to the invasion of Kuwait by developing a top-secret plan for an air campaign against Iraq. The aim of Instant Thunder, the code name for the plan, was to destroy eighty-four strategic targets in Iraq in one week. Unlike Operation Rolling Thunder, the gradualistic approach used in bombing North Vietnam in the 1960s, Instant Thunder had the objective of moving quickly to paralyze the Iraqi leadership, degrade military capabilities, and neutralize the Iraqi military’s will to fight. Instant Thunder eventually served as the basis for Phase I and Phase II of Operation Desert Storm, the Allied coalition’s comprehensive war plan.

Instant Thunder was prepared and ready to launch less than two weeks after Iraq invaded Kuwait on August 2, 1990. Its primary target was Baghdad, Iraq’s capital city and home to its leader, because it was assumed that if Saddam Hussein were eliminated, the Iraqi Army would withdraw from Kuwait. Although Instant Thunder sought an airpower-only victory, few believed that airplanes alone—despite their advanced technological capabilities—were sufficient to fulfill the military and political objectives set down by U.S. and coalition forces.

Planning the Air Strike

U.S. President George H. W. Bush responded swiftly and decisively to the Iraqi invasion of Kuwait. He rallied international condemnation of the invasion and wide support for a speedy military intervention. The initial plan, Instant Thunder, was designed to help achieve the president’s four main objectives: to force unconditional Iraqi withdrawal from Kuwait, to reestablish the legitimate Kuwaiti government, to protect American lives, and to ensure regional stability and security. The United States comprised the bulk of air forces, but Great Britain, France, Argentina, Belgium, Egypt, Germany, Italy, Canada, New Zealand, South Korea, Bahrain, Qatar, the United Arab Emirates, Greece, the Netherlands, and Australia sent either aviation or naval assistance. On August 25, U.N. Resolution 665 was passed, which gave the coalition legal status. Partnerships that would have been unheard of just a year before were forged, such as the example of a Royal Air Force maritime patrol plane that assisted a Soviet warship in intercepting an Iraqi blockade-running ship.

While coalition forces were being organized and built up, Iraqi President Saddam Hussein watched commentators on the Cable News Network (CNN) predict disaster for the coalition. Hussein’s air force was considered the sixth best in the world. If he could convince the Arab nations to withdraw from the coalition, Hussein felt sure that he could emerge victorious. Aside from his military might, the Iraqi president demonstrated his potential for ruthlessness by announcing that all Western nationals trapped in Iraq would be held at planned targets as “human shields.”

In August and September, U.S. Navy, Marine Corps, and Army planners began working closely with Air Force planners to draft the initial air campaign. During the fall of 1990, the Instant Thunder concept evolved into the foundation for the Operation Desert Storm Air Campaign Plan, which was based on achieving five military objectives: 1) isolating and incapacitating the Iraqi regime; 2) gaining and maintaining air supremacy to permit unhindered air operations; 3) destroying nuclear, biological, and chemical (NBC) warfare capability; 4) eliminating Iraq’s offensive military capability by destroying major parts of key military production, infrastructure, and power projection capabilities; and 5) rendering the Iraqi army and its mechanized equipment in Kuwait ineffective, thereby causing the army to collapse. The twelve types of targets included: 1) forty-five leadership command facilities in Baghdad and others in surrounding areas; 2) electricity production facilities; 3) telecommunications and command, control, and communication nodes; 4) the Iraqi strategic Integrated Air Defense System (IADS); 5) air forces and airfields;6) nuclear, biological, and chemical weapons research, production, and storage facilities; 7) Scud missiles, launchers, and their production and storage facilities; 8) naval forces and port facilities; 9) oil refining and distribution facilities; 10) railroads and bridges; 11) Iraqi army units, including Republican Guard forces in the Kuwaiti Theater of Operations (KTO); and 12) military storage and production sites. Planners estimated the phased execution of the air attack would last approximately eighteen days.

Operation Desert Storm Begins

On November 29, 1990, the United Nations passed Resolution 678 at President Bush’s urging. The resolution ordered Iraq to withdraw from Kuwait by January 15, 1991. On January 12, 1991, the U.S. Congress authorized President Bush to use force against Iraq if it did not comply with the U.N. resolution. When January 15 arrived and Hussein’s forces were still in Kuwait, coalition forces not already stationed in Saudi Arabia and Turkey headed for the Middle East. The result of years of American research and development, and billions of dollars spent on technology that would win wars quickly and with as few casualties as possible, were about to be put into use for the first time.

On January 17, soon after midnight, a force of Lockheed F-117A Nighthawks flew into Baghdad. These stealth airplanes slipped silently through the mighty Iraqi defenses, dropping Paveway laser-guided bombs on various sites around the city. Aircraft carriers stationed nearby simultaneously launched Tomahawk missiles that also hit their planned targets. Silent aircraft that could not be tracked from the ground, bombs that could be steered to hit targets the size of a chair, and satellites that could inform military intelligence of their location in a trackless desert were unleashed in a massive demonstration of American power.

On the first day, 655 coalition aircraft flew 1,322 sorties against communication centers and airfields. Iraqi fighter pilots, overwhelmed by the technologically advanced enemy, began fleeing for airfields in neutral Iran on the second day. Within twenty-four hours, the coalition was free to destroy Iraq’s command and control centers. They cut communications between Baghdad and Kuwait and began aiming at Iraqi troops on the ground, destroying bunkers, tanks, and highways. When Iraq began launching Scud missiles into Israel and Saudi Arabia—into Israel in order to draw that country into war knowing the Arab nations would not fight alongside it, and into Saudi Arabia to try and convince it that hosting the coalition was too risky—the United States protected the two countries with Scud-intercepting Raytheon MIM-104 Patriot missile batteries. Although the Patriot did not always intercept the Scud, the missile was a wonderful political weapon in that it kept Israel and Saudi Arabia among the U.S. allies.

The Air Strike Ends

For a month, coalition helicopters and airplanes assaulted any targets that might contribute to the ground war. They destroyed communications buildings and bridges by dropping “Daisy Cutter” (DC) bombs, bombs that were designed to detonate on contact, over the possible frontline to destroy land mines. There was little left of the Iraqi military. Remaining soldiers had no communications, no reinforcements, and little food and water. On February 24, 1991, the air war ended and the ground war began.

Ground Offensive

The Gulf War, widely recognized by its codename Operation Desert Storm, was predominantly an air campaign of the United States and coalition forces against Iraq from January 17, 1991 to February 28, 1991. The war is largely remembered as a land war because the ground war employed the largest invasion force gathered since World War II. U.S. and allied planes, in 42,000 strikes, dropped 88,500 tons of bombs on Iraq and Iraqi targets in Kuwait. Only the final one hundred hours of the conflict were actually fought on the ground. Of the bombs used, roughly 9,500 were laser- and television-guided “smart” weapons, and roughly 162,000 were conventional bombs. The accuracy of the bombing was astounding. The new American airpower assured a relatively bloodless victory, with only 382 U.S. troops lost in both the air and ground wars—of that number 147 died in battle and 235 died in non-battle-related incidents.

Because thirty-nine of the forty-three days of the war were fought in the air, the last four days were spent fighting virtually defeated Iraqi military. The remaining soldiers had lost all communications with military command. There were no reinforcements and little food or water. Iraqi tanks and vehicles had been destroyed in the bombing, and the once-feared Iraqi troops suffered extremely low morale. For these reasons, U.S. and coalition ground troops met little resistance in the last one hundred hours of the war.

The Ground War Begins

On February 24, 1991, forces from the United States, Saudi Arabia, Britain, France, the United Arab Emirates, Bahrain, Qatar, Oman, Syria, and Kuwait began a major ground, naval, and air offensive. Assault elements of the First and Second Marine Divisions launched the attack, easily breaching Iraq’s defense lines of minefields, barbed wire, and bunkers. Within nine hours, the Marines destroyed several Iraqi tanks and bunkers, captured the Burgan oil field, Al Jabbir Airfield, and thousands of Iraqi troops. After ten hours, American casualties were reported as being “remarkably light” during the dramatically successful offensive in which over 5,500 enemy prisoners of war had been captured. Except for one engagement between a Marine task force and an Iraqi armored unit, which resulted in the retreat of Iraqi tanks and troops, only minor contact with Iraqi forces was reported. For the most part, Iraqi troops opted to retreat rather than engage with and surrender to U.S. and allied forces. On the first day of the ground war, two Iraqi aircraft flew to neutral Iran. Flanked by a joint contingent of Arab troops, U.S. forces swept through the burning oil fields of Kuwait toward Kuwait City. The advance of the troops was aided by artillery barrages and repeated strikes by coalition fighter bombers.

On the second day of the ground conflict, February 25, troops reported the operation was running ahead of schedule. U.S. and coalition forces encountered only light to moderate resistance from Iraqi forces. When U.S. forces engaged the Republican Guards, Iraq’s elite military force, they emerged victorious. By this point in the conflict, U.S. and coalition forces had captured over 18,000 prisoners of war and destroyed over 270 Iraqi tanks. The Department of Defense (DoD) reported that 600 fires were burning in the Kuwaiti Theater of Operations (KTO), including 517 oil wellheads. At 5:35 p.m. (EST), Baghdad Radio announced that Iraqi President Saddam Hussein had ordered his troops to make a fighting withdrawal from occupied Kuwait and return to the positions they occupied before the invasion. The White House responded by stating that they had no evidence to suggest that the Iraqi army was withdrawing and that it was, in fact, continuing to fight.

On the third day of the ground attack, Hussein announced on Baghdad Radio that Iraqi troops had begun withdrawing from Kuwait and that the withdrawal would be completed that day. In his twenty-five-minute speech, the Iraqi president maintained that Kuwait was a part of Iraq, but due to armed forces, his troops were being forced to withdraw. He reminded listeners that Constantinople was not conquered in the first battle, implying that he would attempt to occupy Kuwait again. President Bush called the speech an outrage. He then said, “Saddam is not interested in peace, but only to regroup and fight another day, and he does not renounce Iraq’s claim to Kuwait.”

The DoD announced that same day that U.S. and coalition forces were engaging, outflanking, out-maneuvering, and destroying armed and fully retreating Iraqi troops throughout the KTO as the ground offensive continued. In the continued effort, twenty-one Iraqi divisions were destroyed or rendered combat-ineffective; a Marine unit, the first U.S. force to enter Kuwait City, recaptured the U.S. Embassy; and Marines engaged Iraqi tanks at Kuwait International Airport. By this point in the ground war, U.S. and coalition forces captured thirty thousand prisoners of war and destroyed over four hundred tanks.

The Gulf War Ends

On February 27, 1991, the fourth day of the ground offensive, U.S. and coalition forces engaged in a climactic “classic tank battle,” supported by attack aircraft, against approximately three divisions of Republican Guard forces in Iraq near the Euphrates Valley. The remnants of Iraq’s forces were surrounded by a mighty wall of U.S. forces along their eastern flank and U.S. and coalition forces along their southern flank. The massive encirclement of Kuwait and southern Iraq around the exhausted and depleted Iraqi forces led to the destruction of two hundred Iraqi tanks, fifty armored vehicles, and twenty artillery pieces. Twenty-nine Iraqi divisions were destroyed or rendered combat-ineffective in the battle. At this point, with Iraqi forces outnumbered two to one, facing a heavily dug-in force, General Norman Schwarzkopf devised a plan that would deliver the final blow of the war. Simultaneous sea and ground operations calling for special forces to conduct mine countermeasures in the Arabian Gulf were put into effect. Aircraft carrier and ground-based air strikes prevented the rebuilding of bridges; U.S. and coalition forces blocked a Republican Guard retreat out of Kuwait and set up a flanking position intended to prevent attacks; U.S. and coalition forces, with the support of naval gunfire, began engaging remnants of Republican Guard tank units to the east; the First Marine Division seized the Kuwaiti International Airport; and the Second Marine Division encircled and cut off any exits out of Kuwait City. The efforts were a success. General Schwarzkopf declared the near-total destruction of the Iraqi army and stated that Iraq was no longer a regional military threat. At 9:00 p.m. (EST), President Bush addressed the nation and announced the defeat of the Iraqi army. Terms of a cease-fire were outlined and the United Nations formally requested Iraqi compliance. On February 28, the Iraqi government delivered a letter to the United Nations stating its intention to comply with the terms of the cease-fire, thereby ending the brief but devastating war.

The Home Front

Black Monday (1987) and the Ensuing Economic Recession

The stock market crash of Monday, October 19, 1987, was the largest single-day crash in history. The Dow Jones Industrial Average, one of several stock market indices used to gauge the industrial component of America’s stock markets, lost more than 22 percent of its value, or $500 billion, that day. The crash led to an economic recession that resulted in several years of high unemployment, massive government budgetary deficits, and slow gross domestic product (GDP) growth.

Causes

An extremely powerful bull market—a prolonged period of rising investment prices—characterized the stock market from 1982 to 1987. Companies scrambling to raise funds to buy each other out bolstered the market’s strength. The philosophy at the time was that companies could grow exponentially by buying other companies. During such a prolonged bull market, an element of irrationality sets in, as more and more buyers jump into a market that seems to be rising and rising with no end in sight. This influx of money into the market often boosts stock prices much higher than a corporation’s actual market value. The end result of such overconfidence in a “never-ending” bull market is a market with overinflated prices and too many buyers. In other words, a market ripe for a downturn.

When the downturn inevitably occurred, it was not one single factor that provoked it, but several. One of these factors was the rise of insider trading investigations. In early 1987, the U.S. Securities and Exchange Commission (SEC) conducted a number of investigations into the illegal practice of insider trading—using nonpublic information to profit on stock transactions. Investors, unsettled by the prospect of further investigations, became wary. Furthermore, because the bull market was so vigorous, economists began to fear inflation. The Federal Reserve quickly raised short-term interest rates to curb inflation, but this had the unfortunate effect of damaging stock prices. To protect against stock dips, many institutional trading firms began using portfolio insurance; this created one more factor that helped create Black Monday. Portfolio insurance used futures contracts—agreements to buy or sell specified commodities at a predetermined quantity and price at a predetermined future date—as insurance policies. Individuals holding futures contracts would be able to make money in the event of a market crash, offsetting the losses in the stock holdings.

When the interest rates rose, many of these large institutional firms started using their portfolio insurance all at the same time. This flooded the futures market with billions of dollars within minutes, which caused the crash of both the futures market and the stock market. Common stock holders, frightened by the activity, started selling their holdings simultaneously. The market could not handle so many orders at once. Beyond that, most people could not sell because there were no buyers left.

The Crash

Five hundred billion dollars evaporated from the Dow Jones index on October 19, 1987. Markets around the world followed, crashing in the same way, with individual investors losing fortunes instantly. The majority of investors who were selling were only doing so because they saw everyone else selling. They did not even know why they were doing it. This kind of irrationality led to the extreme market crash and the closing of futures and stock exchanges for the day.

Largely unnoticed during the crash was the sharp rise in the bond market, which received a significant amount of the money that went out of the stocks. Because the government bond market was ten times larger than the stock market, this was good news since gains in bonds more than outweighed losses in stocks. That evening, analysts announced that the Federal Reserve banks would aggressively purchase government bonds to provide financial markets with needed liquidity.

Around the world, markets plunged. The evening after the crash in New York, Tokyo’s Nikkei index fell 15 percent, London markets continued to decline, and Australia’s market fell 25 percent. The stock markets in Hong Kong and New Zealand simply shut down. Although the New York Stock Exchange (NYSE) opened up 211 points the following day, giving the hopeful nation reason to believe that a “bounceback” had happened, the Dow fell almost 100 points in the first half hour. It rallied and then fell again several times throughout the course of the day, closing up 103 points. Scare headlines and dour predictions ruled the media until the end of October, but the market’s recovery and continued strength quickly allayed those fears.

The Aftermath

By mid-November, it seemed the crash had not caused the kind of damage that had been expected. October payrolls swelled, performing better than they had since September 1983, department store sales increased on a yearly basis by 1.4 percent, consumer spending rose by 0.5 percent, Christmas sales reached a new record, and the Commerce Department revealed a third-quarter surge of 4.1 percent in the U.S. gross national product.

By the end of the year, several fact-finding commissions were busy investigating the causes of the crash. The most impartial study, conducted by a commission chaired by future U.S. Secretary of the Treasury Nicholas Brady (1930–), placed most of the blame for the crash’s severity on portfolio insurance and traders who placed huge orders based on computer programs, or program traders. The Brady Commission made several recommendations, including greater regulatory oversight of index options markets and higher option margins—percentages of the value of an option that a buyer is required to pay up front. The commission also recommended increased cooperation between the stock exchanges and a greater amount of disclosure of information. Each of the Brady recommendations was adopted and the Federal Reserve Board was given the task of oversight.

The Recession

The stock market crash of 1987 definitely contributed to the recession of the late 1980s and early 1990s, but the savings and loan crisis, which occurred at the same time and put the savings of millions of Americans in jeopardy, was another significant contributor. The first burst of recession following the stock market crash was short-lived because of an unexpected rise in consumer confidence and increased consumer spending. That combination lifted the United States and Canada out of the economic recession that had plagued North America. But the recovery was largely illusory. By 1990, the economic climate was marked by high unemployment, massive government budgetary deficits, and slow GDP growth. The continued recession affected the United States until 1992.

Savings and Loan Bailout

In 1989, newly elected President George H. W. Bush unveiled a plan to bail out over one thousand failed savings and loans institutions. The massive failures constituted a crisis that has been interpreted in many ways. Some believe it was the greatest scandal in American history. Others describe it as the most profound case of fraud in the history of crime. Others still regard it as the natural result of the so-called climate of greed nurtured by the Reagan administration. Still others saw it as a premeditated conspiracy to move covert funds out of the country for use by U.S. intelligence agencies. The cost of the crisis has been estimated at $150 billion, of which roughly $125 billion was directly subsidized by the U.S. government. The savings and loan (S&L) crisis contributed to the large budget deficits in the early 1990s and may have contributed to the 1990–1991 economic recession. Estimates predict it will cost over $500 billion over thirty years to completely bail out the failed S&Ls.

Background

Savings and loan associations, also known as thrifts, have been around since the 1800s. They are financial institutions originally created to accept savings from private investors and offer home mortgage services to the public. Beginning in 1932 with the creation of the Federal Home Loan Bank System, thrifts were strictly regulated and deposits were insured by the Federal Savings and Loan Insurance Corporation (FSLIC). Although the S&L crisis happened in the 1980s, its origins were in the 1960s and 1970s when market interest rates began to fluctuate with increasing intensity. The fluctuations made it difficult for the S&Ls to survive because interest rate ceilings prevented the institutions from paying competitive rates on deposits. This meant that every time market interest rates rose, consumers withdrew substantial amounts of funds and placed them where they would earn higher rates of return. The effect of consumers withdrawing deposits (disintermediation) and subsequently redepositing funds when the rates rose (reintermediation) left the S&Ls extremely vulnerable. To compound matters, money market funds became sources of competition for the S&Ls, which are not allowed to enter into business other than accepting deposits or granting home loans.

Between 1980 and 1982, statutory and regulatory changes gave the savings and loan industry new powers intended to return them to profitability. The S&Ls, for the first time, were given the authority to make acquisition, development, and construction loans. In 1980, Congress also raised the limits on deposit insurance from $40,000 to $100,000, which was significant because a failed S&L had a negative net worth. By increasing Federal Deposit Insurance Company (FDIC) coverage, those institutions that previously would not have been able to pay off their debt could now take more risk to try to work their way out of insolvency so that the government would not have to take them over. In September 1981, The Federal Home Loan Bank Board allowed troubled S&Ls to issue “income capital certificates,” which allowed an insolvent institution to appear solvent. In December 1982, the Garn-St. Germain Depository Institutions Act went into effect. It extended federally chartered S&L powers further, putting S&Ls on a more equal footing with commercial banks. This caused a massive defection of state-chartered S&Ls to the federal system. In response, California, Texas, and Florida allowed state-chartered S&Ls to invest 100 percent of their deposits in any ventures they desired. Deregulation caused the industry to grow just when the Federal Home Loan Bank Board decided to reduce its regulatory and supervisory staff. The savings and loans took advantage of the real estate boom and high interest rates of the early 1980s and lent far more money than was prudent, especially to risky ventures that many S&Ls were not qualified to assess correctly.

The Fallout

The relaxation of accounting rules led to fraud and other crimes within the government and the savings and loan industry. This criminal behavior, combined with customer defaults and bankruptcies, led to a massive failure in the industry. In 1980, there were 4,002 active S&Ls. By 1983, 962 of them had collapsed. Some, like Empire Savings of Mesquite, Texas, failed because of “land flips” and other illegal activities. Empire’s failure would go on to cost taxpayers roughly $300 million. By 1987, losses at Texas S&Ls made up more than half of all S&L losses nationwide. Of the twenty largest losses in the country, fourteen were located in Texas. The losses sent the state’s economy into a major recession. Crude-oil prices dropped by half, office vacancies rose to 30 percent, and real estate prices completely collapsed.

Charles Keating (1923–), the former head of Lincoln Savings of Irvine, California, is probably the most notorious figure associated with the S&L crisis. Keating admitted to committing bankruptcy fraud by taking $1 million from the parent corporation of Lincoln Savings when he knew the corporation was due to collapse in a matter of weeks. He was convicted of fraud, racketeering, and conspiracy in 1993 and went on to serve four and a half years in prison. The Lincoln failure was estimated to have cost taxpayers over $2 billion. Before Keating was convicted, Edwin J. Gray, chairman of the Federal Home Loan Bank Board, was summoned to the office of Senator Dennis DeConcini (1937–). DeConcini and Senators John McCain (1936–), Alan Cranston (1914–2000), John Glenn (1921–), and Donald Riegle (1935–) questioned Gray about the appropriateness of Bank Board investigations into Keating’s Lincoln Savings. Because Keating contributed campaign funds to all five senators, they became known as the “Keating Five.” DeConcini, Cranston, and Riegle were forced out of politics as a result of the scandal, but McCain and Glenn were exonerated of all charges of influence-peddling.

The Bailout

In 1988, the Federal Home Loan Bank Board reported that fraud and insider abuse were the most aggravating factors in the massive wave of S&L failures. A year later, President George H. W. Bush presented his plan to bail out the thousands of failed S&Ls. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) abolished the Federal Home Loan Bank Board and FSLIC. It shifted S&L regulation to the newly created Office of Thrift Supervision and moved the deposit insurance function to the FDIC. The Act also created the Resolution Trust Corporation to resolve the insolvent S&Ls. Other major provisions of FIRREA included the allocation of funds to the Justice Department to help finance the prosecution of thrift crimes. In 1990, the Crime Control Act mandated a study by the National Commission on Financial Institution Reform, Recovery and Enforcement to research the causes of the S&L crisis and come up with suggestions to prevent future scandals.

International Context

The Fall of the Soviet Union

In the late 1980s, economic and political conflict led to increased tension within the Soviet Union (USSR). Political pressure to either win or end the war in Afghanistan led to military frustration with the Communist political regime. Economic stagnation fostered frustration with the centrally managed financial system. Lastly, Soviet member countries, including the Balkans, the Soviet bloc, and Chechnya and Georgia were experiencing a nationalist resurgence. Soviet leader Mikhail Gorbachev’s attempt to engineer a gradual liberalization of the country was initially successful, but different republics’ pro-nationalist and Soviet anti-liberal factions weakened Gorbachev’s power, ultimately leading to the dissolution of the Soviet Union in late 1991.

Historical Background

Problems with the Soviet political and administrative system began to arise in the late 1970s. Not severe enough to cause alarm, these problems did threaten to undermine the superpower status of the Soviet Union and its political stability. The highly centralized system, created under Joseph Stalin (1878–1953) in the 1920s and 1930s, allowed the government to control its people’s public and private lives and was generally very successful. It was designed to bring uniformity and equality to all citizens and appealed to a sense of equity. In practice, though, the system was too separated from the public to be truly responsive to its needs.

The Soviet economic system was encumbered by defense expenditures, especially when the arms race with the United States escalated in the 1950s and 1960s. Because Soviet leaders felt it critical to keep abreast of technological advances, many resources were being spent on the military instead of areas that would improve the lives of Soviet citizens. The gap between the people and their leaders was very wide, which resulted in a political system that did not reflect the wishes of the populace. This led to the erosion of Soviet leaders’ political legitimacy in the eyes of the disenfranchised and a desire among those individuals to reform the system. After Leonid Brezhnev (1906–1982), the longtime party leader and head of state, died in 1982, the responsibility of rejuvenating the Soviet system fell to his successors. After two of them died between 1982 and 1985, Mikhail Gorbachev took up the challenge. At the age of fifty-four, Gorbachev was the youngest man to hold the most powerful post in the Soviet Union. Gorbachev’s reforms, designed to revive the stagnating Soviet economy and renew public trust in the country’s leadership, actually accelerated the Soviet decline and led to its collapse.

Perestroika

Gorbachev identified economic stagnation as his most pressing challenge. As a result, he launched successive campaigns opposing wasted material and human resources. He called on industrial managers and the workforce at large to combat corruption, apathy, and drunkenness at work, but he believed that without a major restructuring of the economy, known as perestroika, his plans for rejuvenating the Soviet Union would fail. He also restricted resources earmarked for defense and injected funds into the dilapidated industrial sector. Because it was impossible to withhold defense funds while the Soviet Union was involved in the war against Afghanistan and the arms race with the United States, Gorbachev took unprecedented steps to alleviate tensions with both nations. In May 1989, Gorbachev ordered the withdrawal of Soviet forces from Afghanistan, which quieted tensions between the United States and the Soviet Union. In 1990, Gorbachev’s reformist foreign policy, dubbed “New Thinking,” resulted in the political upheavals of Eastern Europe that swept Communist governments aside and brought anti-Russian, pro-Western leaders to power. The new approach led to the celebrated re-unification of East and West Germany in 1990.

Gorbachev’s policy of glasnost, or openness, was put into effect as a way of addressing the Communist party’s legitimacy crisis. Glasnost was responsible for the opening of the previously closed Soviet media, among other things, which began running stories about previously taboo subjects like crime, corruption, and prostitution, and the Soviet system began to take on a more responsive, democratic image. Gorbachev’s attempt to win the public trust also led to the formation of public organizations, including social and political clubs and associations. Eventually, the clubs pressed for political legitimacy, which brought about the removal of the Communist Party of the Soviet Union’s (CPSU) constitutional monopoly in 1990.

The Beginning of the End

Non-Russians who were forced to repress their cultural heritage and traditions during almost seventy years of Soviet rule saw Gorbachev’s reforms as permission to reclaim their history. Popular fronts demanding cultural revivals and reassessments of their long-sublimated histories grew in strength, especially in the Baltic states and the Caucasus. In 1990–1991, the threshold between these so-called reassessments and calls for independence was crossed. Gorbachev was willing to appease nationalist demands, but conservative members of the CPSU balked. Reforms had undermined the authority of the Party internally and externally. The CPSU no longer controlled public life, and Gorbachev’s gestures toward the West cost the CPSU Eastern European allies. Conservatives expressed fears that negotiating a new Union Treaty would bring about the end of the Soviet Union. Gorbachev tried to calm their fears, explaining that his reform program was necessary for the preservation of a strong and viable Soviet Union. He supported his words by taking a strict approach against calls for independence in the Baltic and Transcaucasia. On August 19, 1991, two days before the new Union Treaty was to be signed, Soviet hardliners attempted a coup that unraveled by August 21, 1991. The failed coup humiliated Gorbachev, who was on vacation when trusted members of his government sought to overthrow him. Because he could not stop the nationalist tide that was sweeping over the country, and because he had lost credibility, Gorbachev resigned from the presidency on December 25, 1991.

The Soviet Union Collapses

In June 1991, Boris Yeltsin (1931–2007) won a popular mandate in the presidential elections and became the first Russian leader to stand in direct elections. His courageous behavior during the August coup—Yeltsin inspired mass demonstrations against the 1991 attempt to overthrow Gorbachev’s government—brought him and his team of reformers unprecedented popularity and international recognition. He capitalized on his popularity by pressing ahead with radical reform policies. Immediately after the attempted coup, Yeltsin’s government banned the CPSU and went so far as to confiscate its assets. It also initiated the process of price liberalization and privatization so that state assets could be distributed to the populace. It did not take long for Yeltsin and his government to completely dismantle the pillars of the Soviet economy.

The disintegration of the Soviet system resulted in triple-digit inflation and price hikes. The crisis was exacerbated by a fall in industrial production. The government found it increasingly difficult to pay its workers, wage earners who were deprived of subsidized government social services due to the privatization of housing, childcare, and retail shops. Economic reforms following the Soviet collapse led to an unprecedented imbalance in the distribution of wealth. While the majority of the population experienced radically lowered living standards, industrial managers and Soviet administrators became wealthy capitalists overnight. While all this was happening, the Soviet republics took advantage of the central government’s loosening grip and asserted their own rights to power. Nationalist supporters recognized the disintegration of the Soviet Union into fifteen separate entities as a natural inevitability and argued that every nation had the right to govern itself. Glasnostand perestroika made nationalist aspirations possible while the Soviet collapse made independence for those nations a reality.

Aftermath

The Clinton Presidency

William Jefferson Clinton became the forty-second president of the United States in 1993. The young Democrat defeated Republican President Bush in 1992 after vowing to focus on economic issues, especially overcoming the sluggish growth of the American economy. He sought to reshape the Democratic Party by focusing on issues supported by the middle class, including tougher crime laws, jobs for welfare recipients, and tax reform that would shift more of the tax burden to the rich. But Clinton maintained certain traditional liberal goals, including gun control, legalized abortion, environmental protection, national health insurance, and gay rights.

Despite battles with the Republican Congress, Clinton, who was elected to a second term in 1996, successfully met his goals to lower unemployment, control the runaway deficit, and tackle welfare reform. Clinton experienced two major setbacks during his administration. The first was his inability to reform health care. The second was his impeachment by the House of Representatives on charges of having lied under oath and obstructing justice in the attempted cover-up of his affair with White House intern Monica Lewinsky (1973–). Clinton’s successes in foreign affairs were mixed. On the one hand, he helped broker peace negotiations in Northern Ireland, was instrumental in ousting the military dictatorship in Haiti, and forced the government of Serbia to end its violence against Muslims in Bosnia and Albanians in the Kosovo region. On the other hand, Clinton failed to mobilize support to end the genocide in Rwanda, and the peace talks he facilitated between Israel and the Palestine Liberation Organization soon devolved into renewed strife that continues today.

The Clinton Administration at Home

By the end of his first year as president, Clinton secured the adoption of an economic package that combined tax increases, which fell mainly on the upper class, and spending cuts, which hurt mainly impoverished Americans. Despite the Republicans’ dire predictions that the package would result in economic chaos, it had the opposite effect. Clinton’s economic policy had the $290 billion deficit shrinking by 1994, and by 1999, generated a surplus of $124 billion. The combination of economic growth, low inflation, and low interest and unemployment rates positioned the American economy as the world’s strongest and most robust.

On some issues, like the passage of the North American Free Trade Agreement (NAFTA), Clinton benefited from Republican support. On others, like welfare reform, Congress accepted Clinton’s lead in publicizing the issue, but dominated the actual writing of legislation. By working together this way, Congress passed a sweeping reform bill that fulfilled Clinton’s 1992 campaign promise to “end welfare as we know it.”

Clinton was besieged by conservative Republicans, especially those on the far right, who made him and the First Lady the subjects of numerous special investigations during his administration. The Whitewater investigation, which looked at the president’s and Hillary Clinton’s possible participation in financial impropriety in 1978 in Arkansas, was the earliest sustained attack. Another setback occurred in 1997 when the Supreme Court ruled that a sexual harassment suit brought against the president by Paula Jones could go forward while he was in office. Then, in January 1998, news broke that President Clinton had engaged in sexual acts in the Oval Office with White House intern Monica Lewinsky. For the next seven months, the American public was inundated with news of the affair and the related investigation. The scandal led to the eventual impeachment of the president for lying to the grand jury. Because the Senate did not produce the two-thirds majority vote it needed to convict Clinton and remove him from office, the president was acquitted of perjury and obstruction of justice on February 12, 1999. He served the next two years of his second term without incident. Clinton’s ratings in public opinion polls hovered around 70 percent in the months following the impeachment. Some of those polls showed that most Americans gave the president low marks for character and honesty and high marks for performance, and viewed the Republican attackers as mean-spirited extremists. Some polls also showed that many voters were happy with Clinton’s handling of the White House, the economy, and most matters of public life. However, the president’s law license was suspended by the Arkansas bar for five years and he paid a $25,000 fine. Upon leaving office, Clinton did publicly admit his testimony was misleading, and the special prosecutor ended the Whitewater investigation when Clinton left office on January 21, 2001, and stated that Clinton would not be criminally prosecuted for perjury after he left office.

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