NewsBusters has regularly pushed back on this historically inaccurate premise specifically pointing to two crucial pieces of legislation signed into law by former President Bill Clinton.
On Wednesday, a contributor to the Huffington Post - who is also the editor of the website TruthDig - published an article confirming what NewsBusters has been claiming, doing so in a fashion that must have shocked the economically ignorant proprietor of this perilously liberal online "news" outlet:
Since the collapse happened on the watch of President George W. Bush at the end of two full terms in office, many in the Democratic Party were only too eager to blame his administration. Yet while Bush did nothing to remedy the problem, and his response was to simply reward the culprits, the roots of this disaster go back much further, to the free-market propaganda of the Reagan years and, most damagingly, to the bipartisan deregulation of the banking industry undertaken with the full support of "liberal" President Clinton. Yes, Clinton. And if this debacle needs a name, it should most properly be called "the Clinton bubble," as difficult as it may be to accept for those of us who voted for him.
Clinton, being a smart person and an astute politician, did not use old ideological arguments to do away with New Deal restrictions on the banking system, which had been in place ever since the Great Depression threatened the survival of capitalism. His were the words of technocrats, arguing that modern technology, globalization, and the increased sophistication of traders meant the old concerns and restrictions were outdated. By "modernizing" the economy, so the promise went, we would free powerful creative energies and create new wealth for a broad spectrum of Americans -- not to mention boosting the Democratic Party enormously, both politically and financially.
If you're checking that link to confirm this was actually published at HuffPo, I understand. It is indeed rather shocking.
That said, what Robert Scheer - who is also a contributing editor to the Los Angeles Times and the Nation - was referring to without naming the legislation was the Financial Services Modernization Act of 1999.
For those that have forgotten, FSMA eliminated the last vestiges of the Depression Era Glass-Steagall Act which created legal distinctions between what banks, securities firms, and insurance companies were allowed to offer to the public as well as invest in. FSMA removed such barriers ushering in a new era of lending and securitization partially responsible for the easy money that pumped up housing prices last decade.
What media members conveniently ignored in the fall of 2008 was that this bill was signed into law by Clinton on November 12, 1999. It passed in the Senate by a vote of 90 to 8, and 362 to 57 in the House.
As Scheer correctly pointed out, this was key to the eventual financial collapse:
Traditional banks freed by the dissolution of New Deal regulations became much more aggressive in investing deposits, snapping up financial services companies in a binge of acquisitions. These giant conglomerates then bet long on a broad and limitless expansion of the economy, making credit easy and driving up the stock and real estate markets to unseen heights. Increasingly complicated yet wildly profitable securities--especially so-called over-the-counter derivatives (OTC), which, as their name suggests, are financial instruments derived from other assets or products -- proved irresistible to global investors, even though few really understood what they were buying. Those transactions in suspect derivatives were negotiated in markets that had been freed from the obligations of government regulation and would grow in the year 2009 to more than $600 trillion.
Beginning in the early '90s, this innovative system for buying and selling debt grew from a boutique, almost experimental, Wall Street business model to something so large that, when it collapsed a little more than a decade later, it would cause a global recession.
Scheer was correct, although he failed to mention the significance of another piece of legislation Clinton signed into law the following year called the Commodity Futures Modernization Act of 2000.
Amongst other things, CFMA completely deregulated the kinds of financial derivatives - credit default swaps and collateralized debt obligations for example - that assisted banks, brokerage firms, and insurance companies in making loans to people that couldn't possibly qualify for them.
CFMA cleared the legislative process by initially passing with almost unanimous support. In fact, the final vote cast in the House on October 19, 2000, was 377-4. 180 Democrats, including current Speaker Nancy Pelosi (D-Cali.), voted in favor of this bill.
Months later, this bill became part of a larger, end of the year consolidated appropriations act which passed the House by a vote of 292 to 60. Only nine Democrats voted against it. The bill was later approved with a voice vote by the Senate - without objection - and signed into law by President Clinton on December 21.
Scheer continued:
[A] plethora of aggressive lenders was only too happy to sign up folks for mortgages and other loans they could not afford because those loans could be bundled and sold in the market as collateralized debt obligations (CDOs). The investment banks were thrilled to have those new CDOs to sell, their clients liked the absurdly high returns being paid -- even if they really had no clear idea what they were buying -- and the "swap" sellers figured they were taking no risk at all, since the economy seemed to have entered a phase in which it had only one direction: up. [...]
Not only were those making the millions and billions off the OTC derivatives market ecstatic, so were the politicians, bought off by Wall Street, who were sitting in the driver's seat while the bubble was inflating. With credit so easy, consumers went on a binge, buying everything in sight, which in turn was a boon to the bricks-and-mortar economy. [...]
Of the leaders responsible, five names come prominently to mind: Alan Greenspan, the longtime head of the Federal Reserve; Robert Rubin, who served as Treasury secretary in the Clinton administration; Lawrence Summers, who succeeded him in that capacity; and the two top Republicans in Congress back in the 1990s dealing with finance, Phil Gramm and James Leach. [...]
The combined power of the Wall Street lobbyists allied with popular President Clinton, who staked his legacy on reassuring the titans of finance a Democrat could serve their interests better than any Republican.
Shocking coming from a contributing editor to the Nation.
Regardless of his political leaning, Scheer was largely correct in removing blame from Bush. However, as much as I would love to point the big finger at Clinton, that too is myopic.
In the end, the financial collapse of 2008 was decades in the making likely starting with the Community Reinvestment Act under President Carter which put pressure on lending institutions to loan money to folks that were considered bad risks.
With each subsequent administration and Congress came additional regulatory changes making it easier and easier for folks to get and qualify for home loans as well as unsecured debt.
Now add in an economic boom during the '90s largely caused by the internet and high-tech expansion in both the workplace as well as the home, and America's love for Wall Street grew and grew.
Voters all over the country and on both sides of the aisle were enjoying unprecedented financial prowess making it easy for Congress and the White House to enact additional legislation designed to let the good times roll for ever and ever.
There was talk back then of eliminating the business cycle completely - we'll never have a recession again! - and generating budget surpluses as far as the eye can see.
In the end, it should come as no surprise that our elected officials were suffering from the very same irrational exuberance the public was, and that a huge bear market was looming as was a recession none of them saw coming.
As such, pointing the finger of blame at one person - or even one President - is unfair, especially if the man mostly being accused wasn't even in office when the two final pieces of legislation leading to the crash were enacted.
If only our media had been honest about this in the fall of 2008 and the months that followed.
That said, kudos go out to Scheer for writing this and to the Huffington Post for publishing it.
The only question remaining is if other media outlets are going to pick up on this story and finally tell America the truth about what happened back then as well as who were and weren't responsible.
Or is that asking too much from today's advocacy journalists?
Post facto teaser: what's the possibility the truth is being exposed to take pressure off of Obama and the Democrats before the midterm elections? Would media throw Clinton under the bus to save the current President as well as his control of Congress?
After all, the blame Bush meme clearly isn't working.
Hmmm.
