Bill v. Barack on Banks

[metta 0]

Bill v. Barack on Banks

Clinton instructs Obama on finance and Phil Gramm.

Wall Street journal

A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress's 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking. Barack Obama has been selling this line every day. Bill Clinton signed that "deregulation" bill into law, and he knows better.

APIn BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton's reply: "No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.

"But I have really thought about this a lot. I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."

One of the writers of that legislation was then-Senator Phil Gramm, who is now advising John McCain, and who Mr. Obama described last week as "the architect in the United States Senate of the deregulatory steps that helped cause this mess." Ms. Bartiromo asked Mr. Clinton if he felt Mr. Gramm had sold him "a bill of goods"?

Mr. Clinton: "Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence.

"But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment."

We agree that Mr. Clinton isn't wrong about everything. The Gramm-Leach-Bliley Act passed the Senate on a 90-8 vote, including 38 Democrats and such notable Obama supporters as Chuck Schumer, John Kerry, Chris Dodd, John Edwards, ####### Durbin, Tom Daschle -- oh, and Joe Biden. Mr. Schumer was especially fulsome in his endorsement.

As for the sins of "deregulation" more broadly, this is a political fairy tale. The least regulated of our financial institutions -- hedge funds -- have posed the least systemic risks in the current panic. The big investment banks that got into the most trouble could have made the same mortgage investments before 1999 as they did afterwards. One of their problems was that Lehman Brothers and Bear Stearns weren't diversified enough. They prospered for years through direct lending and high leverage via the likes of asset-backed securities without accepting commercial deposits. But when the panic hit, this meant they lacked an adequate capital cushion to absorb losses.

Meanwhile, commercial banks that had heavier capital requirements were struggling to compete with the Wall Street giants throughout the 1990s. Some of the deposit-taking banks that were allowed to diversify after 1999, such as J.P. Morgan and Bank of America, are now in a stronger position to withstand the current turmoil. They have been able to help stabilize the financial system through acquisitions of Bear Stearns, Washington Mutual, Merrill Lynch and Countrywide Financial.

Mr. Obama's "deregulation" trope may be good politics, but it's bad history and is dangerous if he really believes it. The U.S. is going to need a stable, innovative financial system after this panic ends, and we won't get that if Mr. Obama and his media chorus think the answer is to return to Depression-era rules amid global financial competition. Perhaps the Senator should ask the former President for a briefing.

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Edited October 1, 2008 by metta

[one...two...tree 2,762]

(Bill Clinton - Oct. 1, 2008)

"Senator Obama has spoken a lot about how we ought to relate to the world, and yes, he'll get out and travel some in the first year, we should want him to do it. But he is going to have to be really focused on fixing this economy. That means that role of the Vice President in repairing quickly our relations with the rest of the world will be relatively more important in the first two years of the next presidency. And I am just telling you, you can talk to me or anybody else at any time in Washington, and they will tell you there is nobody, nobody in the entire United States senate that understands the political, the economic, and the security challenges and opportunities of the world better than Joe Biden does. He is a superb choice."

Later, in the same speech, Clinton tied the messages together: "The Obama/Biden ticket, and particularly Senator Obama, have a better philosophy, better answers, better understanding, better advisers, a better vice presidential candidate, and a better plan for Florida.... This is not close, folks. It is not a close question."

http://www.washingtonmonthly.com/

Edited October 1, 2008 by Jabberwocky

[IAMX 3,055]

Since after the conference committees revised the Gramm-Leach-Bilely Act, did Clinton signing it really matter after it passed 90-8-1 in the Senate and 362-57-1 in the House? (Republicans pushed it through the Senate/House to get it to conference) ? If Clinton veto'd it would it have passed anyways?

This blame game between Republicans and Democrats is stupid no matter how you spin it. It's both their faults and everyone knows it. It's just a matter of both sides owning up to it. Good luck with that.

Edited October 1, 2008 by SRVT