With all the crazy people out there causing all sorts of chaos, should the government bring back mental hospitalization?

No he did not.
"The short answer is 'deinstitutionalization.' During the 1960s, many people began accusing the state mental hospitals of violating the civil rights of patients. Some families did, of course, commit incorrigible teenagers or eccentric relatives to years of involuntary confinement and unspeakable treatment. Nurse Ratched, the sadistic nurse famously portrayed in the book and film 'One Flew Over The Cuckoo's Nest,' became a symbol of institutional indifference to the mentally ill.

By the late 1960s, the idea that the mentally ill were not so different from the rest of us, or perhaps were even a little bit more sane, became trendy. Reformers dreamed of taking the mentally ill out of the large institutions and housing them in smaller, community-based residences where they could live more productive and fulfilling lives.

In 1967, Gov. Ronald Reagan signed the Lanterman-Petris-Short Act (LPS), which went into effect in 1969 and quickly became a national model. Among other things, it prohibited forced medication or extended hospital stays without a judicial hearing.

A mental patient could be held for 72 hours only if he or she engaged in an act of serious violence or demonstrated a likelihood of suicide or an inability to provide their own food, shelter or clothing due to mental illness. But 72 hours was rarely enough time to stabilize someone with medication. Only in extreme cases could someone be held another two weeks for evaluation and treatment.

As a practical matter, involuntary commitment was no longer a plausible option.

As one psychiatrist in a Bay Area hospital observed, 'By the time someone's been pumped full of Thorazine for 14 days, if they still seem dangerous to a judge, they have to be really dangerous.'

The LPS Act emptied out the state's mental hospitals but resulted in an explosion of homelessness. Legislators never provided enough money for community-based programs to provide treatment and shelter. Even the most modest programs encountered local resistance.

'No neighborhood wanted the mentally ill living among them,' recalled former state Sen. Tom Bates.

Lanterman later expressed regret at the way the law was carried out. 'I wanted the law to help the mentally ill,' he said. 'I never meant for it to prevent those who need care from receiving it.'

But that's exactly what happened for three decades."
http://www.psychlaws.org/gene...

That's right, the Governor signed a bill inspired by those who clamored for the "civil rights" of the mentally ill to be on the street AND who bogusly claimed they'd be better off with community counseling. So no, Reagan, didn't close mental hospitals or put anyone on the street. FAD views on mental health, a misguided ACLU, and politicians who "know better" did it.

Oh and IN that same article:
"Last year, Assemblywoman Helen Thomson, D-Davis, and Sen. Don Perata, D- Oakland, sponsored legislation that would have reformed the 30-year-old LPS Act and allowed California to join the 27 other states that can consider a patient's history of mental illness, as well as his or her current state of mental and physical deterioration. It cleared the Assembly 53-16, only to be stopped cold by Senate President Pro Tem John Burton, who vowed, 'It ain't going to happen.'"
Some things never change. Oh and for those who don't know, Burton was a DEMOCRAT, so don't try to pin this on Republicans.