Blaming Clinton?
Interesting Sunday Times Magazine article on Bill Clinton. The part I found most intriguing was about the regulatory acts that the Clinton administration was responsible for:
“One thing that thrived during Clinton’s presidency, the economy, has wilted of late. The economic boom of the 1990s created nearly 23 million new jobs during his eight years, but today, the economy is shedding hundreds of thousands of jobs a month. While this has stoked nostalgia for the prosperity of the Clinton era, it has also focused new scrutiny on his record. What role did Clinton’s policies play in creating the conditions that led to the Great Recession?
When the subject came up during our conversation in Chappaqua, Clinton calmly dissected the case against him and acknowledged that in at least some particulars his critics have a point. In almost clinical form, as if back at Oxford as a Rhodes scholar, he broke down the case against him into three allegations: first, that he used the Community Reinvestment Act to force small banks into making loans to low-income depositors who were too risky. Second, that he signed the deregulatory Gramm-Leach-Bliley Act in 1999, repealing part of the Depression-era Glass-Steagall Act that prohibited commercial banks from engaging in the investment business. And third, that he failed to regulate the complex financial instruments known as derivatives.
As we have tirelessly detailed, the CRA issue is a wingnut non-starter. But the other two critiques are on target:
The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems. The second he gives some credence to, although he blames Bush for, in his view, neutering the Securities and Exchange Commission . . .
Clinton argued that the Gramm-Leach-Bliley Act set up a framework for overseeing the industry.
Um, no. Its not the cause of the crisis, but the repeal of Glass Steagall Act made the damage that much worse. And, it can also be argued these banks became too big to manage, and that added to the problems.
As the the CFMA:
Then there are the derivatives. There, Clinton pleads guilty. Alan Greenspan, the Federal Reserve chairman, opposed regulation of derivatives as they came to the fore in the 1990s, and Clinton agreed. “They argued that nobody’s going to buy these derivatives, we’ll do it without transparency, they’ll get the information they need,” he recalled. “And it turned out to be just wrong; it just wasn’t true.” He said others share blame, including credit-rating agencies that underestimated the risk. But he accepts responsibility as well. “I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission and that transparency rules had been observed and that we had done that. That I think is a legitimate criticism of what we didn’t do.” He added: “If you ask me to write the indictment, I’d say: ‘I wish Bill Clinton had said more about derivatives. The Republicans probably would have stopped him from doing it, but at least he should have sounded the alarm bell.’ ”
Fascinating stuff . . .
>
Source:
The Mellowing of William Jefferson Clinton
PETER BAKER
NYT, May 26, 2009
http://www.nytimes.com/2009/05/31/magazine/31clinton-t.html
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May 28th, 2009 at 4:48 pm
There’s good money to be made in those hills going after Bill & Hilary….
CNBC IN HD…… Maria B. more pasty then ever…how could you bring home 7+ figures and look so tired?
May 28th, 2009 at 5:08 pm
Conflicted: “I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission” AND
“although he blames Bush for, in his view, neutering the Securities and Exchange Commission . . . ”
If impotent, putting derivatives under the jurisdiction of the SEC wouldn’t have mattered. Would it?
What bothers me the most is that if his assessment of the SEC was accurate at that time then why would he sign “the deregulatory Gramm-Leach-Bliley Act in 1999, repealing part of the Depression-era Glass-Steagall Act that prohibited commercial banks from engaging in the investment business.” What in the hell was he thinking???
On another note, if I hear Caruso-Cabrera refer one more time to a metals trade as the “fear” trade, I might just fly to NY and show her what fear is really all about.
May 28th, 2009 at 5:27 pm
‘CHICKEN FEED’ Those excuses carry vary little water. By far, ‘By Far’, the biggest destructive factor of Clinton’s was the signing of NAFTA. By far!
May 28th, 2009 at 5:37 pm
I hope Obama doesn’t just sit and do nothing (or even throw gas on the fire) since the ones before him have obviously made mistakes. Not to mention any names ………
May 28th, 2009 at 5:38 pm
NAFTA?
I’m pretty sure that we are a net exporter to Mexico, so NAFTA does not scare me a bit. MFNS for China however, is what has been doing us in, as equitable CO2 emission standards, labor laws, environmental standards and a floating currency should have been required. Wingnuts and neo-Libertarians love to harp on NAFTA, but it is not even in the same LEAGUE as the damage done with China trade.
May 28th, 2009 at 6:13 pm
Here’s the Fed study that shows that CRA loans made up a minuscule portion of sub-prime loans.
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4136
~~~
BR: I’ve done so many posts taking this false meme apart — its a chapter in the book — perhaps its time for a new one.
May 28th, 2009 at 6:18 pm
@blackhalo: Sure, Mexico may be less scary than China because China is going to eat our lunch in the technology sector.
But in the case of Mexico NAFTA is still hurting lots of people. Many small farmers in Mexico are going broke. And American companies ship components and raw materials to Mexico where Mexican labor does the assembly and completion.
So just being a net exporter doesn’t necessarily tell the whole story.
May 28th, 2009 at 6:23 pm
Clinton got sucked into the black hole of the prevailing economic ideology of the time.
Summers, Rubin, Greenspan, Gramm all of them.
Prodded of course by the titans at the time namely Sandy Weill.
May 28th, 2009 at 6:24 pm
“Many small farmers in Mexico are going broke. And American companies ship components and raw materials to Mexico where Mexican labor does the assembly and completion.”
That is kind of the point. The standard of living of both countries benefit as, Mexicans get cheaper food in exchange for the US getting less expensive manufactured goods, without the destrucive excange we get from China’s lack of a floating currency, or even remotely comparable labor and environmental standard.
Sure some industries in each country are harmed, but there is a net benefit to NAFTA. Free trade, when actually free, works.
May 28th, 2009 at 6:54 pm
I’ve got to give credit to Clinton for honestly acknowledging where he went wrong on this. Very admirable. Summers, by contrast, will never admit to ever being wrong on this. Nor will Rubin and I suspect that they were even more culpable than Clinton himself.
May 28th, 2009 at 7:07 pm
As a Democrat and a big Clinton fan over the years, I cannot deny that Clinton made huge blunders signing the repeal of Glass Steagall and legisltation the following year, both penned by Phil Gramm by the way, that deregulated the derivatives market. At the time very few people raised eyebrows about either of these pieces of legislation. In fact I believe the derivatives legislation, Commodities Futures Modernization Act, was the last piece of legislation Clinton signed as President and was hidden in some larger legislation, and signed at at time that no one was really paying any attention to it.
Clinton overall was a pragmatist and he presided over a very prosperous economic period. Nevertheless he bought into the conservative, free market, deregulation is good, mantra of the time, which was shared by almost all Republicans, Alan Greenspan and a large portion of Democrats, including Summers, Rubin and Geithner. Rather than blame Clinton for going along with the program, I personally blame the philosophy itself. I consider it to be part of the Reaganomics mindset which basically ruled the country from 1980 until the Great Recession of 2008. It is Reaganomics much more than Clinton the man who should be what history puts most of the blame on for the massive mess we see today. For the mess didn’t begin with the signing of these foolish pieces of legislation. The debt, derivatives, and deregulation (3Ds as I call it) all began with Ronald Reagan and ended with the hyperinflationary depression that we are only beginning to experience today. http://www.jonasclark.com/wordpress/wp-content/uploads/2008/12/usdebt_serendipitythumb.jpg
May 28th, 2009 at 7:35 pm
Well I think it was all EVE’s fault, she should never have let that snake convince her to take a bite out of that apple!
This blame stuff is not productive at all…
It doesn’t matter to be RIGHT or WRONG to finger ‘deficit spending’ as the root cause of all evil (perhaps it was)…
But what good does it do to IDENTIFY that as the culprit, and yet the current Administration (knowing the root cause), essentially ups the ante…
I mean, if it was Reagan’s fault so be it…but now that you KNOW it’s harmful, why continue with the same policies?
Wake up, Obama!
May 28th, 2009 at 7:45 pm
Permabear:
Well as some say, Clinton was the most successful Republican President since Eisenhower.
May 28th, 2009 at 8:06 pm
Permabear is 100% correct…debt started rising in 1980…clearly a new paradigm was in effect. It was already out of control by 1987, when Reagan made the colossal, unimaginably disastrous blunder of installing the maestro. Total credit proceeded to go on a drunken orgy, continuing to this day to heights we cannot recover from in our lifetimes. The pain of it unwinding has yet to be felt. What we have had so far is just credit growth slowing. The deflationary debt crash should start soon, with plant closings and massive defaults.
It was the maestro…so blind that he could not recognize the greatest credit bubble the world may ever know…that could have maybe stopped it from happening.
May 28th, 2009 at 8:09 pm
BTW, the link Permabear gave is the chart I am referring to and it is better titled “Total credit market Debt as a % of GDP”…the chart is outdated, as we are now at 370%.
May 28th, 2009 at 8:11 pm
At least Clinton recognizes his errors in judgement. Greenspan is still in denial.
btw is Advanta the canary in the coal mine?
May 28th, 2009 at 8:15 pm
Moss Says:
May 28th, 2009 at 6:23 pm
Clinton got sucked into the black hole of the prevailing economic ideology of the time.
Summers, Rubin, Greenspan, Gramm all of them.
Prodded of course by the titans at the time namely Sandy Weill.
~~
that’s a Masterpiece. Really, one, just, needs to sit back in awe of that one..
May 28th, 2009 at 9:40 pm
I hate to get into “Godwin’s Law” territory, but I think when the history of this period is written by those who are looking back rather than by those of us who lived through it, it will be seen in much the same way as the rise of the Nazis in Germany, or the Salem Witch Trials, or the John Law’s Mississippi Company scheme in France, or any number of other highly destabilizing events, in which ultimately no one person can be blamed.
As was the case in every single one of those situations, blame will be apportioned to many parties acting on behalf of many different interests, but the overall conclusion will be that at a critical point in history, everybody went crazy all at once. Virtually all major interests simultaneously decided that it was OK to deny and throw away rules and traditions that had worked so well, despite the fact that any logical analysis showed this change to be irrational if not completely insane.
In this case, we have met the enemy and he is us, along with all those who have claimed to represent us at any point in the past 20-25 years.
May 28th, 2009 at 10:10 pm
:-) don’t fight the tape ..
say goodbye to Goldilocks Capitalism and hello to Rainbow Utopianism
May 29th, 2009 at 12:47 am
@Mannwich
I agree. And I’m encouraged, frankly. It would be one thing if this economic crisis was limited to the usual suspects (blue collar workers and minorities), but now, “good, honest, white folk” are suffering. I’m reminded of an Eminem song:
“And look where it’s at
Middle America, now it’s a tragedy
Now it’s so sad to see, an upper class city
havin this happenin…”
May 29th, 2009 at 2:23 am
Come on folks, this one happened on George W.’s watch. I’ve been a longtime republican but in my retrospective Clinton was a helluva good president. He ran a budget surplus, kept us out of international conflict, presided over a booming economy, instilled confidence rather than fear. His main failing was the Lewinsky affair. And I’ll take that one any day over the multiple fiascos that marked George W.’s presidency.
We can try to wind the clock backwards to see where it ticked but this is all just revisionist blather. The economy tanked under the republican watch. The fault may not be 100% theirs but I’ll peg it at over 90% at least. Clinton’s role, if any, happened long, long ago and the republican “stewards” of the American economy had eight long years, with majorities in both houses of congress for much of it, to run things. If change was needed they had more than their fair share of time to enact it. They failed utterly. Blame placed where blame belongs.
May 29th, 2009 at 4:19 am
aitrader Says:
goes w/: “…He ran a budget surplus, kept us out of international conflict, presided over a booming economy, instilled confidence rather than fear. His main failing was the Lewinsky affair. And I’ll take that one any day over the multiple fiascos that marked George W.’s presidency.”
and caps it off w/: “…but this is all just revisionist blather…They failed utterly.”
some things are, truly, to be marveled at..
NAFTA, China MFN, WTO, Yugoslavia/Serbia, Somalia, WTC I, Ruby Ridge, Waco, OKC, Growing– Economy-Wide–Debt levels, Annual increases in Federal liabilities, Beginning of the “War on Terror”…
and, please, let us forget all about this: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=bill+clinton+mena+arkansas+drug+running
hey, for starters, why should we let Facts stand in the way of good BS?
May 29th, 2009 at 4:42 am
I’ve come to think of Bill Clinton as the Chauncey Gardener of modern US Presidents.
He rode the greatest financial (not economic) expansion in modern history….much of it now was obviously nothing more than air….but man….that shit was fun.
Was there a better/funner place to be on God’s Green Earth than Manhattan around 1998??
Perhaps it was the Peak. HST’s cresting wave if you will…
1992-2000 were probably as good as it will ever be in my lifetime.
WJC had a chance to set the nation on a sane path of steady reasonable growth based on making things, not buying things. He took the easy road. Hard to blame. Chauncey too “liked to watch”.
May 29th, 2009 at 6:03 am
the past couple of weeks events have really opened up the inflation/deflation debate. I really want to believe equity bears’ arguments about deflation because they seem so logical. Then I go to the charts and take a look at commodities, treasuries and equities. These charts are not signalling deflation. Unless this is all one giant headfake, which looks increasingly unlikely, these charts are telling me that some type of dollar implosion is underway and getting awfully close to critical mass.
May 29th, 2009 at 6:18 am
Let’s say you have a beach ball…it springs a tiny leak and starts to deflate…you immediately hook a pump to it and patch the hole…if you keep pumping you will “over-inflate it”…now let’s say a massive rip occurs that you can’t patch…you can pump all you want and it will still deflate.
May 29th, 2009 at 6:37 am
I concur. This is why an outcome with a manageable amount of inflation seems very unlikely.
If the world has lost belief in the dollar as a viable currency, market action makes sense. I guess another scenario would be too much money sloshing around, positioning itself for a recovery that won’t come, but then the bond market would not have gotten killed like it has. The bond market would be much higher. Interesting to find out what will happen.
I’m sticking to trading off the charts. Charts for commodities look great. Gold looks like it is about to explode to the upside. I’m staying away from equities for now though I still look for more upside.
May 29th, 2009 at 7:27 am
Obsessive Housing Disorder
Nearly a century of Washington’s efforts to promote homeownership has produced one calamity after another. Time to stop.
http://www.city-journal.org/2009/19_2_homeownership.html
The campaign gained further traction with the election of Bill Clinton, whose housing secretary, Henry Cisneros, declared that he would expand homeownership among lower- and lower-middle-income renters. His strategy: pushing for no-down-payment loans; expanding the size of mortgages that the government would insure against losses; and using the CRA and other lending laws to direct more private money into low-income programs. Shortly after Cisneros announced his plan, Fannie Mae and Freddie Mac agreed to begin buying loans under new, looser guidelines. Freddie Mac, for instance, started approving low-income buyers with bad credit histories or none at all, so long as they were current on rent and utilities payments. Freddie Mac also said that it would begin counting income from seasonal jobs and public assistance toward its income minimum, despite the FHA disaster of the sixties.
Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers.
And even with lenders now chasing this market enthusiastically, the Clinton administration kept pushing for higher government-mandated goals. In July 1999, HUD proposed new levels for Fannie Mae’s and Freddie Mac’s low-income lending; in September, Fannie Mae agreed to begin purchasing loans made to “borrowers with slightly impaired credit”—that is, with credit standards even lower than the government had been pushing for a generation.
Congress later took up where Clinton left off.
May 29th, 2009 at 7:28 am
@insaneclownposse (6:03) (6:37)
“Then I go to the charts and take a look at commodities, treasuries and equities. These charts are not signalling deflation”.
—
Sure the “charts” don’t signal deflation because the Fed & the Administration still have the punchbowl out…As long as the punchbowl is out, what do you do? you drink! There is no such thing as leaving a punchbowl out (in a country full of drunks) and expecting people to ACT RESPONSIBLY…
BB has deluded himself all along that he thought the Fed could “engineer” the precise turn around point where he could withdrawl $$ and have this whole thing work out orderly…
Well HERE’S YOUR ORDER PAL!
The bond vigilantes have jumped into the fray, the 10y is probably going to 4.5% so whatever fragile recovery via re-fi’s in housing are now TOAST…Banks are saying “screw it” (even though the academic yield curve says they should be able to profit from making loans, THEY’RE NOT)…So all the free money just goes in to bid up commodity prices…
This is EXACTLY what happened during the October 2007-July 2008 period…A lot of the LEVERAGE is removed, but it’s basically the same story anyway because there are fewer players (with free money), bellyflopping in an arena that isn’t that liquid in the first place…
So now BB, REALLY has to do his job…He has to take the punchbowl away, I wouldn’t want to be HIM & have to be the one & go and tell BHO & RE that…
So THAT’s how you end up with DEFLATION all along…The day that you realize that your little money printing operation created a heat that you can’t handle…
May 29th, 2009 at 9:22 am
Inflation vs. deflation is equivalent to the debate about the real economy vs. the academic economy. In the real economy with house prices falling, unemployment rising and credit still contracting, you’d say we have a deflationary environment. But from a numbers and academic standpoint when you mix trillions in bailouts and stimulus, deficit spending as far as the eye can see, and the Fed monetizing the debt, something you see in Argentina and Zimbabwe, I’d say it’s only a matter of time before inflation prevails.
May 29th, 2009 at 9:57 am
“The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems.”
~~~~~~~~~~~~~~~~~~~~~
Analysts warn bank failures loom in Minnesota
Minnesota’s banks are straining under the weight of bad loans and dwindling reserves. Some of them, analysts say, may not last the year.
In Minnesota, concern is centered on dozens of small, community banks — most with assets of less than $1 billion — that grew frantically earlier this decade by making loans to real estate developers and builders. Many of their loans were based on overly optimistic assumptions of future home sales and land values.
http://www.startribune.com/business/46321532.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aUUI
GEORGIA BANKS
Nearly half lost money
$1.2 billion gone in first three months of year.Red ink tied to troubled real estate market. 11 failed in last 8 months.
While much of the loss was tied to the performance of the state’s largest banks, SunTrust and Synovus, nearly half the state’s banks lost money during the first three months of the year, according to data released Wednesday by federal regulators.
http://www.ajc.com/services/content/printedition/2009/05/28/gabanks0528.html
May 29th, 2009 at 11:03 am
Drug running Clinton’s…hey mark e hoffer time to put down the kool-aid!
May 29th, 2009 at 11:17 am
NAFTA?
………….., so NAFTA does not scare me a bit. MFNS for China however, is what has been doing us in, ……………………………Wingnuts and neo-Libertarians love to harp on NAFTA, but it is not even in the same LEAGUE as the damage done with China trade.
{Blackhalo, I wasn’t asking your opinion. I was stating a fact}
May 29th, 2009 at 12:23 pm
Though I was only lowly senior in high school at the time, I seem to recall that one of the key reasons the Gramm Act was signed was that non-US banks were already becoming universal banks and thus US Banks were getting bullied/undercut in many of their main lines of business.
That’s no justification but what it does seem to do (at least to me) is make the Gramm Act much less significant. The massive, conflicted, shady mega-banks were headed our way regardless, it’s just that they wouldn’t have been headquartered in the US.
And the enormous securitization of horrible loans and the writing of titanic quantities of derivative insurance on those horrible loans happens with or without Gramm Act. So the Gramm Act was dumb but I’m guessing largely inconsequential as I can easily see everything that just happened still happening if that Act never gets passed. Just a thought.
May 29th, 2009 at 2:07 pm
the money printing machine was turned on in 1996–ahead of the election. (check woodwards book for that and also look at money supply growth). Also, credit card debt started running up in mmid 90′s–saw that on some website.
Finally–and check for yourselves at http://www.treasurydirect.org
US debt increased every year in the 90′s
so–where was that surplus the Clintons like to talk about. Or waws that a lie or spin? What the did was “borrow” from social security to reduce the budget deficit.
In the meantime the public buys into it hook line and sinker.
May 31st, 2009 at 2:31 am
mtlippincott Says:
“Though I was only lowly senior in high school at the time, I seem to recall that one of the key reasons the Gramm Act was signed was that non-US banks were already becoming universal banks and thus US Banks were getting bullied/undercut in many of their main lines of business. “
This was one of the reasons they used to justify the legislation but there was no more need for monster banks in 1998 than there was during the days of the “Trust Busters” or later on of Ferdinand Peccora.
The absolute worst outcome of this financial mess is that we end up with the same finance industry that we began it with. Depending simply on regulation to do the job is a joke. The degree of regulation can change from one administration to the next. Just look at the FCC or the Dept. of Labor for examples.
What we need is a restructuring of the industry. In the words of Krugman, we need to make banking boring again.