Sen. Clinton, You Want Who To Fix Our Economic Mess?

I have been waiting to hear what the presidential candidates have to say about how to address the financial crisis gripping the country, and the international markets. Very little of substance has been said, beyond vague pronouncements -- until yesterday. Sen. Hillary Clinton released a plan, which, in my humble opinion, underscores why another Clinton administration would do very little to get control over the fundamental problems in our financial system -- because she proposes putting people in charge of the reform who caused the very crisis we are in.

Under a bullet point entitled "A High-Level Emergency Working Group on Foreclosures to Investigate How to Achieve Broad Restructuring of At-Risk Mortgages," Sen. Clinton calls on:

...President Bush to appoint an Emergency Working Group on Foreclosures to address this question within the next three weeks. The group could be headed by eminent leaders like Alan Greenspan, Paul Volcker, and Bob Rubin - each of whom supports one of the remaining candidates in the Presidential race.[the added emphasis is mine]

I read this several times in astonishment, though it is not entirely frankly surprising. My own view, shared by many other people a whole lot smarter and knowledgeable, is that the financial meltdown we are witnessing -- a meltdown whose casualties will be millions of regular people, including 10 million people who will be living in homes whose values have sunk below what they paid -- is the culmination of several decades of a policy of de-regulation that was pursued by Democratic and Republican administrations, and encouraged, to one extent or another, by Messrs. Volcker, Greenspan and Rubin. These folks are "eminent leaders" only because they have been anointed as such by the political elites who either gave them the jobs they coveted, or leaned on them for cover (read: Bob Rubin as the Clinton Administration's emissary to the bond markets), or paved the way for political contributions -- or all of the above.

They didn't all make the same errors -- but the policies that they encouraged favored the financial elites over regular Americans. Those policies can be broken down into three points:

1. A belief that fighting inflation, above all, was the most important policy objective of the government and, by extension, the Federal Reserve.

2. Budget deficits are bad.

3. Deregulation is good.

A Google search makes this pretty easy to document (you would think some mainstream reporters might point this out but that's a different story). Let me give you a taste.

Just three years ago, when people were scoffing at the warnings about an impending financial crisis, Paul Krugman wrote about Greenspan:

He's like a man who suggests leaving the barn door ajar, and then -- after the horse is gone -- delivers a lecture on the importance of keeping your animals properly locked up.

Regular readers know that I have never forgiven the Federal Reserve chairman for his role in creating today's budget deficit. In 2001 Mr. Greenspan, a stern fiscal taskmaster during the Clinton years, gave decisive support to the Bush administration's irresponsible tax cuts, urging Congress to reduce the federal government's revenue so that it wouldn't pay off its debt too quickly.

And...

And here's where Mr. Greenspan is still saying foolish things. In his closing remarks he suggested that "an end to the housing boom could induce a significant rise in the personal saving rate, a decline in imports and a corresponding improvement in the current account deficit." Translation, I think: the end of the housing bubble will automatically cure the trade deficit, too.

Sorry, but no. A housing slowdown will lead to the loss of many jobs in construction and service industries but won't have much direct effect on the trade deficit. So those jobs won't be replaced by new jobs elsewhere until and unless something else, like a plunge in the value of the dollar, makes U.S. goods more competitive on world markets, leading to higher exports and lower imports.

So there's a rough ride ahead for the U.S. economy. And it's partly Mr. Greenspan's fault.

My colleague Mark Weisbrot pointed out that Greenspan was, if you were a regular Joe, a disaster:

The Fed actually brought on the last (1990-91) recession by raising interest rates to 10 percent in 1989. Although Mr. Greenspan began lowering them as the economy slowed, it turned out to be too little and too late.

Paul Volcker may be a dim memory to many people but he is no friend of the regular American. When Volcker, who has endorsed Sen. Obama, was appointed by Jimmy Carter, it was that Democratic president's signal to the financial world that he, Carter, would embrace the neo-liberal agenda. And Volcker, in my view, created the modern Federal Reserve Board philosophy.

Traditionally, the Fed had a dual role: price stability and full employment. FULL EMPLOYMENT? Yeah, isn't that a quaint thought that no one ever talks about now because our expectations are so low. In an admittedly gross overview, Volcker tossed out the idea of full employment and pursued one goal: price stability. He did that by jacking up interest rates as high as 18-20 percent and driving the price of the dollar up -- which destroyed manufacturing and cost hundreds of thousands of Americans good-paying jobs (by the way, as a digression: this was a harbinger of the recent economic policies we endured, until recently, when a very high dollar killed a lot more good-paying jobs -- benefiting Wal-Mart and other corporations with large operations in China but not doing much good for our underlying economy).

Volcker set out to -- and was wildly successful -- at breaking wage expectations. Think today -- what do average Americans really expect to see in wage hikes in an economy where "efficiency," "free trade," "free market" and "inflation" are much higher priorities than improving the wages of most people?

But, in some ways, Volcker's most enduring legacy is that he laid the groundwork for a Federal Reserve that is unaccountable to the American people. Volcker's predecessors saw themselves as accountable to Congress -- and the voters. Volcker changed that. He argued that "price stability" was paramount and, to attain that goal, the country needed a Federal Reserve Board that was autonomous and above politics -- which meant unaccountable to voters. So, today, the Fed has an out-sized role in managing the basic fundamentals of the economy, far more powerful than the Treasury and the Congress. I believe that is horrendous and must be changed.

As for Robert Rubin, a leader of Citigroup, why would we let him even touch the issue of mortgages? As
Dean Baker, the co-director of the Center for Economic and Policy Research, points out:

Citigroup provided the secondary market for many of these predatory mortgages with its creative financial engineering and structured investment vehicles.

And Rubin has been a lead Democratic champion of deregulation, the very policy that has created the mess we find ourselves in:

When he stepped down from his Treasury post this past summer, Rubin left unfinished a legislative effort to re-write the nation's banking laws. Misnamed "financial modernization" legislation was really a deregulatory initiative -- reminiscent of the S&L deregulation that led to a corporate crime spree, the collapse of the industry and the subsequent taxpayer bailout of epic proportions.

The centerpiece of the deregulatory bill, which different fragments of the finance industry have pushed for a decade and a half, is the repeal of the revered Glass-Steagall Act, which bars companies from owning banks and insurance companies or securities firms at the same time.

The genius of these "eminent leaders" is that, to a great extent, they don't care who is elected. They, and the people who they work with, will run economic policy -- either from the private sector or from the Beltway.

Let me suggest a different proposal. We do need an overhaul of the financial system. But rather than put the same people in charge who have created the mess, I'd suggest that we need a different constellation of thinkers. My own modest suggestions (and I invite other nominations):

Dean Baker: co-director of The Center Economic and Policy Research and one of the earliest and most frequent analysts who warned about the housing bubble.

Ron Blackwell: senior economist for the AFL-CIO.

Paul Krugman: columnist for the New York Times, who I don't think is quite right on trade yet but is excellent when it comes to the issue of the role of government regulation in the financial markets.

I'd have these three lead the commission and figure out who else to appoint.

Sen. Obama? What say you?

Comments

[WIpatriot]

The only thing that matters to her (regarding the economy) is that it SOUNDS like she's concerned about fixing it.

[vippy]

Ever noticed that the simple people, who have no clue, vote for Hillary? They have no clue about
her voting record, her past 35 years of baggage, and they make excuses for her blatant lies.

[PacificGatePost]

Not so subtle. No one seems to have the answers but just attacking Hillary is just so much piling-on.....


http://pacificgatepost.blogspot.com/2008/03/media-imbalance-on-hillary-clinton.html

[WIpatriot]

How about Ron Paul for Secretary of the Treasury?

[Sundialsvc4]

I would frankly like for Senator Obama and Senator Clinton AND Senator McCain to step out of the campaign trail ... put their political cat-fight into the closet for a season ... and, AS SENATORS and AS COLLEAGUES(!) (gasp...) go back to the WORK that their respective States actually elected them to do. I know that political opponents are supposed to be at each others' throats, but as active Senators they really ought to be .. you know .. "Senators, first."

[outnow]

I have not heard an original idea from Hillary Clinton. I have been waiting 35 years.

Please read the article entitled Progressives for Obama posted today on the Huffpo by Tom Hayden, Bill Fletcher, Barbara Ehrenreich and Danny Glover. Only in this way can we exert pressure for a progressive agenda in every front in the war on the old school bilateral parties of deregulation and wars for profit.

Hillary's advisers on every issue represent the views of the Republican party from NAFTA to the GWOT to further deregulation. She is unable to comprehend reality as in being under fire in Bosnia. We are under fire right here in America from her and Bill Clinton's enabling policies and behaviors. let's try to end the nightmare and move the ball down the field for the benefit of our children.

Hillary doesn't see the light. We do indeed need an overarching progressive vision. The Clintons lack such as vision. She was wrong on Bosnia but not on Iraq - and now this Greenspan, Rubin and Volcker. Outrageous pandering to Wall Street and the demise of Main Street. The NAFTA Queen has outdone herself.

[dadw5boys]

One thing is for sure that Hillary brings with her an important ADVISOR.
He will be invaluable in getting the economy up and running again.

Clinton / Ron Paul = DREAM TICKET!!!!!!!!

[WIpatriot]

Ron Paul for Sec of Treasury.

[MilwaukeeDan]

I don't know much about Paul, but one of his economic advisors is Peter Schiff(www.europac.net). Mr. Schiff knows numbers as does former comptroller general David Walker. But, of course, Mrs. Clinton trotts out old retreads(greenscam, rubin, voelker). Just like her foreign policy team, Bill's buds.

[WIpatriot]

Dan, Ron Paul is the one Rep on the Banking Committe that verbally spanks Bernanke (and Greenspan before him) every six months when the Fed reports in.

[Stirner]

Quite a while back, Ron Paul noted that the Federal Reserve was screwing up the economy and we should start thinking about abolishing it. Result? -- media talking heads convulsed with laughter at "Dr. Loony". Now we are getting into real economic trouble. Here we go -- Hillary's solution: print up more cash, hand it out to everyone; Obama: rob the rich and hand it out to everyone (except the rich); McCain: more war will keep the economy on the rise, so on to Iran!.

Well, as the poet Schiller once said "Against ignorance even the gods are helpless".

[ozamerican]

I think Hillary and her advisors are so far out of the loop of everyday life that they still think this is 1994 and Alan Greenspan is God.

[WIpatriot]

Gawack! (Not sure about the spelling. but it's the sound I made choking on my iced tea.)

[venicesurfer]

im sure an inexperienced obama administration would do better.

[midwesthousewife]

Experience, inexperience, it all seems to be a wash in the end.

[WIpatriot]

A blind, adultering mayor could do better.

[vipersdad]

Since it's inception in 1913, the Federal reserve bank has failed to halt and in some cases, has worsened financial collapses. Even Fed Chair Bernanke has publicly agreed with the case made that bad policy on the part of the Fed was the REAL contributor to the Great Depression. (http://www.wnd.com/index.php?fa=PAGE.view&pageId=59405) What most people don't give much thought to is what the Fed Really is.....a private company that is beholden to the interests of large banks than vs. the US Government.
Coming out of every single market "downturn," has been massive consolidation on the financial side or on the industrial/manufacturing side. Small banks, small companies either go out of business wholesale or are bought up by larger companies. Some of that is arguably part of the natural laws of economics. But allowing a Federal Reserve to "manage" our economy when it's clear that their interests may be to notions that are not per-se bound by political or national boundaries is a recipe for regular manipulation of the market to serve BIG interests at the expense of the common American Worker. In a downturn (see BEAR STEARNS), large banks can buy companies for pennies on the dollar as compared to their valuation in a strong market.
Our so-called "free" market is manipulated by a private company who has no operational allegiance to the US Government and the American Taxpayer.

[jhNY]

The "geniuses" trotted out by Clinton and disparaged by you have one great advantage over the list you provide: they're people other people have heard of, people who other people, for reasons good and mostly bad, believe were in charge and therefore responsible for the most recent era of financial good times, the 1990's, which of course, was only a bubble of another color.

That means at least at the start, many people will feel confident that the "geniuses" can handle the job of pulling the present wreck out of the ditch. And that confident feeling is about all anybody can provide to people right now, as in fact, the economy is totalled and on fire, and the thick smoke billowing out in all directions has only temporarily obscured the full extent of the damage from view .

[argeec]

Since my first post was mangled, I'll try again:
I agree with Greenspan and Rubin, and I would add Sanford Weill.
I don't think Volker is a bad guy - he had no choice but to clamp down to stop the inflationary spiral.
I would suggest Alan Blinder for Fed chairman.

[nippersdad]

Agreed. As I seem to recall, stagflation was a pretty traumatic experience at the time. Price stability in such times are a goal worth fighting for. That the FED continued to put up with with the nastier effects of such policies as Volcker initiated after the crisis ended is not something which can really be laid at his door.

[argeec]

I agree with Greenspan and Rubin, and would add Sanford Weill.

[GreedyOldPsychopaths]

Don't you mean Fred Sanford?

[WIpatriot]

Oh, really?

[winterline]

[trevor01]

The economy depends on steady growth fueled by ever increasing consumption. Some people, especially intellectuals, don't particularly like that - they think it's bad for people, bad for the environment, and in the long run it's unsustainable. They must be right, but what's the solution? Import Fidel? I understand he's available.

[WASanford]

The real problem has been our inability to create wealth ( I mean of course goods and services)! I spent some time in Eureka, CA several years ago and I found out that we were chopping down our trees in Northern California, chipping them up and sending them to Japan were they were made into paper and then shipped back to America. If the trees are here, and the need for paper is here, then why aren't we making the paper here?

[WIpatriot]

Tax breaks offshoring profits.

[nippersdad]

The Overton Window is loosely defined as the use of extremist alternatives to make distasteful ones seem less onerous. Congratulations on a good example of its' use in practice.

[jhNY]

Evidently there's no small problem with this idea in the short run also, if you take into account the present.

[BigBen]

Why not get Barack to fix the mess. He can call on the Rev. Wright to help him since hie own experience may not be quite enough.Or maybe the Chicago gangster that helped him buy his house!

[aznurse]

This is all you have to say about the mess we're in? No wonder we're so screwed up.