The sight of Bill Clinton back on the White House podium defending tax cuts for the super-rich was more a sick joke than a serious amplification of economic policy. How desperate is the current president that he would turn to the great triangulator, who opened the floodgates to banking greed, for validation of the sorry opportunistic hodgepodge that passes for this administration's economic policy? A policy designed and implemented by the same Clinton-era holdovers whose radical deregulation of the financial industry created this mess in the first place.
As a candidate running against Hillary Clinton, Barack Obama quite accurately excoriated the economic policies of the Clinton years when the Democratic president united with congressional Republicans, led by Senate Banking Committee Chairman Phil Gramm, to obliterate sensible regulations of the New Deal. The result, as candidate Obama noted in March 2008, has been chaos:
"Unfortunately, instead of establishing a 21st century regulatory framework, we simply dismantled the old one -- aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight. In doing so, we encouraged a winner-take-all, anything-goes environment that helped foster devastating dislocations in our economy."
These dislocations were authorized when Clinton signed off on the Gramm-Leach-Bliley Act, which reversed the Glass-Steagall Act's separation between the high rollers of investment banking and the properly conservative, insured and regulated activities of commercial banks entrusted with the life savings of ordinary folks. With a stroke of a pen that he then presented as a gift to Citigroup CEO Sandy Weill, Clinton opened the door to the too-big-to-fail monstrosities that have caused so much misery.
Back in 1999, even though he had been warned of the coming financial instability, foreshadowed by the collapse of Long-Term Capital Management, Clinton was giddy in signing the bill: "Over the past seven years we have tried to modernize the economy," he enthused. "And today what we are doing is modernizing the financial services industry, tearing down those antiquated laws and granting banks significant new authority."
A year later Clinton signed off on the Commodity Futures Modernization Act, advanced most fiercely by his treasury secretary, Lawrence Summers, who has been the dominant personality setting economic policy for Obama. Titles 3 and 4 of that act summarily exempted from the surveillance of any existing regulatory agency or laws all of the newfangled financial gimmicks -- the collateralized debt obligations and credit default swaps -- that have proved so toxic to the jobs and homes of tens of millions of Americans.
In his rambling and somewhat incoherent comments on the economy at the White House last week, Clinton attempted to explain away the failure of the banks to use the money that the government has made available to them to shore up housing and create jobs. As an aside, in commenting on community banks, Clinton touched on the mortgage security mess that his law enabled, but he still doesn't seem to get his connection with the problem: " ... some of them may have a few mortgage issues unresolved, most of that mortgage debt has been offloaded to Fannie Mae and Freddie Mac or has vanished into cyber-sphere with those securitized subprime mortgages. I don't like the securities, but they happened."
What gibberish. The mortgage-backed securities didn't just happen. Clinton signed legislation freeing those securities from any effective government regulation. Most Americans' homes, which represented their dreams and savings, were turned into gambling chips in the Wall Street casino on a scale unknown and indeed unthinkable before the Clinton presidency. What has vanished is the equity of homeowners. As for the offloading to Fannie Mae and Freddie Mac, that represents at least a $700 billion burden on taxpayers who have had to bail out those government-sponsored agencies that became totally corrupt on Clinton's watch.
The bottom line on the Clinton legacy is that the census now finds an all-time high of 44 million Americans living under the poverty line, bringing us back, as a percentage of the population, to Bill Clinton's first two years in office. One big difference is that thanks to Clinton's so-called welfare reform program, there is no longer a significant federal anti-poverty program, and the plight of the poor is now a problem for the state governments, which also have been impoverished thanks to the bursting of the Clinton bubble.
As a candidate, Obama laid responsibility for the meltdown on the bipartisan deregulation of the Clinton years: "This loss has not happened by accident. It's because of decisions made in boardrooms, on trading floors, and in Washington. Under Republican and Democratic administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We let the special interest put their thumbs on the economic scales."
That's the path Clinton followed after his party's electoral reversal after he had been in office two years, a fact that made it all that more ominous to witness the great triangulator back on a White House podium.
Most progressives are appallingly unfair about Clinton. HIs version of NAFTA, for example, had rules to protect workers and the environment. But these were gutted by the Republicans. So chill, guys.
Clinton signed repeal of Glass Stegall. But only because the bill had a veto-proof majority. It weould have been pointless to oppose th epolitical tsunami. (Aren;t Preisdents supposed to be "pragmatic"?) It was the whole party that sold us out that time. Pretty unfair, if not downright cheesy, to pin the deregulation mess on Clinton.
But progressives are pretty irrational about the guy. I take comfort in the fact that most people in the world like him just fine.
Regarding the dreaded "triangulation": a brush-up on civics class will reveal that is is a synonym for compromise, which is how democracy works. Seems a bit weird to say Clinton invented this ancient tool of government.
Note also the historical context, which no ne seems to do. Clinton was President at the height of the Republican revolution. A certain amount of accommodation was inevtiable--and yet he still racked up a good record.
This drives progressives, who have accomplished nothing of note in the last 30 years, nuts.
Obama, one may note, has no such excuse. He took office when the Repubs were broken and bleeding. But he kept acting like it was the 90s.
Neither Clinton nor President Obama are willing to take up a fight unless they are assured of victory beforehand. They are so afraid of losing that they can never win a great victory. You can call triangulation governing by compromise; I call it governing by mediocrity.
I am not a Clinton basher, but I would like to know what went down. I have not heard insightful comment as to how the whole Republican Party was cowed into lockstep in the 1990's.
Gingrich is a bull in a china shop, he didn't manage that coup with his own finesse. Gingrich did promptly employ his new hammer into a trumped up impeachment proceeding.
We don't know what effect that raw use of power had on Clinton, on subsequent Democrats, and would-be dissident Republicans. We know that McCain certainly folded quickly.
That Gingrich power play may have prepared the way for the carefully groomed skillfully promoted and very cold blooded man who is now president.
I don't know certainly. There are questions that should be asked by those more skilled than we at investigation. Our blogger is former editor for Ramparts Magazine. His broadside against Clinton is frivolous and irrelevant while we look down the maw of the disaster that is the pending tax bill.
Mr. Sheer, please ask some probing questions.
"As an aside, in commenting on community banks, Clinton touched on the mortgage security mess that his law enabled, but he still doesn't seem to get his connection with the problem: " ... some of them may have a few mortgage issues unresolved, most of that mortgage debt has been offloaded to Fannie Mae and Freddie Mac or has vanished into cyber-sphere with those securitized subprime mortgages. I don't like the securities, but they happened."
What gibberish. The mortgage-backed securities didn't just happen. Clinton signed legislation freeing those securities from any effective government regulation."
Clinton did not help the employment situation in this country because he bucked the best in his own party to give us NAFTA. Clintom teamed up with Kissinger and Bush 41 to run over house Democrats.
Now Clinton is out there saying that Obama needs to extend tax cuts to the wealthy. "I don't like the securities but they happened." This is a Rhodes Scholar? Considering who Cecil Rhodes himself was, yes, that was Clinton's job.
I'll bet those derivatives turbo-charged the casino on Wall Street for less than two decades but caused the collapse we are now seeing.
As Ross Perot said, "That sucking sound is American jobs going overseas." Clinton made a deal with the devil and never had to man up to that. I'm so glad that someone else is saying what I have said here for three years.
I disagree that the reversal of G-S was even a factor in the RE meltdown. Most of the mortgage volume was enabled by Fannie and Freddie more than anything. The fact that too many laons went bad is the real cause of the meltdown. That has nothing to do with how many types of businesses that banks wer engaged in.
You liberals always to dismiss a very important element in the meltdown...the role of govenrment in forcing banks to make loans to those deemed discriminated against when normal lending guidlines are used. Bush, Frank, Dodd, Pelosi and many other are on the record advocation "homeownership for all".
Banks were suppose to make fair loans to the underserved. Not loans that would surely go under, however, they pushed the loans because banks never had to guarantee them since they were then flipped. The higher-risk the higher the payout...and on and on. Until somebody had to pay the bill. Us. Banks have a fiduciary responsibility. But go ahead and blame those foreclosed on.
Every business has to find a way to be profitable...or why be in business? Given the regualtory pressures the banks found a way to accomodate those who wanted to see more loans to minorities with sub-prime credit ratings and still make a profit. I don't see where the loans were not fair. The real issue became...can the system be sustained. There is a point where you can no longer charge a high enough rate to cover the default costs. In the case of real estate though the FED was reducing rates causing home prices to escalate. That served as a cover for the subprime loans going bad...in a forclosure the borrow simply sold the home..ususally for profit. but then the thing became ubsustainable as the prices could not continue to rise at such high rates forever....the market collapsed
My point is not to absolve banks of all blame...many bankers certainly became a bit greedy in the boom cycle...but that is typical of an overheated market...or if you will a boom and bust cycle. Borrowers were likewise greedy too. Many treated their home equity as an ATM machine taking advantage of the low rates and taking on too much debt.
So my main point is that govenrment meddling played a big part in the eventual collapse of the RE market. Politics helped to skew the market. Pols were able to influence quasi government firms such as Fannie and Freddie to suck up these loans not properly assessing the risk...with the implicit backing of government should they go bad. That to me is market manipulation and is a big cause of this mess.
The collapse was the realization that "we" weren't good for all that debt. We still aren't; mortgage debt still has another 50% to fall from it's 2007 high before it reaches a historical trend line.
I'm just glad I *can* do math, and bought a house I could afford because I wanted to live there, not because I thought it would make me rich.
http://mises.org/daily/2963
http://mises.org/daily/2963