Today is the 15th anniversary of the Oklahoma City bombing. Remembering the occasion,
[Former President Bill] Clinton said his intent was not to stifle debate or muzzle critics of the government but to encourage them to consider what repercussions could follow. He acknowledged that drawing the line between acceptable discourse and that which goes too far is difficult but that lawmakers and other officials should try.
“Have at it,” he said. “You can attack the politics. Criticize their policies. Don’t demonize them, and don’t say things that will encourage violent opposition.”
But in a subsequent interview with ABC News correspondent Jake Tapper, Clinton evaded blame for legislative changes that enabled the financial crisis:
Well, I think on the derivatives before the Glass-Steagall Act was repealed, it had been breached. There was already a total merger practically of commercial and investment banking, and really the main thing that the Glass-Steagall Act did was to give us some power to regulate it the repeal.
And also to give old fashion traditional banks in all over America the right to take an investment interest if they wanted to forestall bankruptcy. Sadly none of them did that. Mostly it was just the continued blurring of the lines, but only about a third of all the money loaned today is loaned through traditional banking channels and that was well underway before that legislation was signed. So I don’t feel the same way about that.
I think what happened was the SEC and the whole regulatory apparatus after I left office was just let go. I think if Arthur Levitt had been on the job at the SEC, my last SEC commissioner, an enormous percentage of what we’ve been through in the last eight or nine years would not have happened.
I feel very strongly about it. I think it’s important to have vigorous oversight. Now, on derivatives, yeah I think [then-Treasury Secretary Bob Rubin and then-Deputy Treasury Secretary Larry Summers] were wrong and I think I was wrong to take [their advice], because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them.
And they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency. And the flaw in that argument was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.
And secondly, the most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges. So much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries not investors, and I was wrong about that. I’ve said that all along. Now, I think if I had tried to regulate them because the Republicans were the majority in the Congress, they would have stopped it. But I wish I should have been caught trying. I mean, that was a mistake I made.
So even when Clinton accepts bad advice from his own advisors, he blames the Republicans. And even when many say repealing the Glass-Steagall Act was a mistake, he claims the law was already ineffective. But if Glass-Steagall was ineffective, that’s either because it wasn’t being enforced or because it failed to restrain institutions that needed regulating. If it wasn’t being enforced, we can only blame the regulators whom Clinton subsequently blames for not doing their jobs leading up to the financial crisis. And if insurance companies needed to be kept out of high-risk banking, that’s reason to bring them into the Glass-Steagall Act, not to repeal the act altogether. Now here’s New York Times columnist Gretchen Morgenson on the cost of the crisis that Clinton enabled:
It is understandable, of course, that Treasury might want to transmit good news about bailouts the same week Americans were rushing to meet the I.R.S.’s tax deadline. And given that Treasury is run by Timothy F. Geithner, the man who doled out bailout billions as president of the Federal Reserve Bank of New York, his current minions certainly have an interest in peddling the view that the price of these rescues has become less onerous.
But before we break out the Champagne, let’s look at the costs this estimate included — as well as those it left out.
Morgenson points to several omitted costs. First, she sees near-zero interest rates as a vast transfer of wealth to the banks, who continued charging much higher interest on what little lending–including credit cards–they were still doing, at the cost of savers and investors. But it’s worse than that. At those interest rates, even government bonds provided an attractive rate of return. That means that interest rates were effectively negative, that taxpayers were paying banks to borrow money to buy government bonds.
And as Christina Romer of the President’s Council of Economic Advisors conceded,
“although banks have largely stopped tightening their lending standards, they have not yet begun to loosen them. In addition, many small businesses report difficulty in obtaining credit. This is a development that makes it harder for businesses to hire and invest.
Romer left out that small businesses remain pessimistic about the economy. A survey indicates that “with sales and earnings weak, few are ready to hire. Over the next three months, slightly more said they planned to cut workers than add jobs, on a seasonally adjusted basis.” It’s hard to blame anyone for being downbeat about the economy. Foreclosures hit a new high in March, bankruptcies were the highest since bankruptcy “reform” passed in 2005, and the International Monetary Fund predicts unemployment will remain high for two more years.
Meanwhile, banks are back at the same games that led us into the financial crisis in the first place, with an increased assurance that they are “too big to fail,” and with self-righteous compensation packages.
But when it comes to unemployment, Barack Obama says, “There are limits to what government can and should do, even during such difficult times.”
Morgenson also points to the cost of FDIC bailouts of failed banks. There have already been 50 of these this year and FDIC Chairman Sheila Bair has said the 2010 total may well exceed the total for 2009. It is unclear how much the government will have to pay in “loss-sharing arrangements the F.D.I.C. set up with healthy banks to persuade them to take on the assets of failing ones.”
As for the banks that are supposedly still healthy, Morgenson quotes Christopher Whalen, editor of the Institutional Risk Analyst, pointing to policies that allow banks to “keep bad loans valued on their books at unrealistic levels.” These prolong the pain as banks try to cover inevitable losses.
All this for a recovery that may well be a chimera. Apart from fears of a possible double-dip recession, Romer tucked this little nugget in with her recent remarks:
Now, to be fair, the unemployment rate has risen somewhat more during this recession than conventional estimates of the relationship between GDP and unemployment would lead one to expect. In this year’s Economic Report of the President, we presented estimates that suggest that the unemployment rate in the fourth quarter of 2009 was perhaps 1.7 percentage points higher than the behavior of GDP would lead one to expect. Some of that unexpected rise goes away when one takes a more sophisticated view of GDP behavior. The Bureau of Economic Analysis estimates GDP in two ways — one by adding up everything that is produced in the economy and the other by adding up all of the income received. These two measures should be identical. But in this recession, the income-side estimates have fallen substantially more than the product-side ones. Therefore some, but not all, of the anomalous rise in unemployment may be due to the fact that the true decline in GDP may have been deeper than the conventional estimates suggest.
Romer’s remarks suggest a challenge to present practices of measuring GDP, a statistic which figures prominently in how economists recognize recessions. Hers are not the first. Neil Irwin, writing in the Washington Post, argued that a portion of gross supposedly-domestic product actually reflects overseas production. With big companies shipping as many jobs, but not the workers who used to hold them, to cheaper and less regulated locales as possible, even during the current recession, I suspect that Irwin’s “elephant in the room” is more the size of a blue whale. Former South Carolina Senator Fritz Hollings recently wrote,
An important part of the job fraud is to make the people feel like the loss of jobs is due to the recession, not off-shoring. Long before the recession, South Carolina lost its textile industry; North Carolina lost its furniture industry; Detroit its automobile industry, and California its computer industry, etc. President Obama wants to increase exports, but we have nothing to export.
Hollings exaggerates and simplifies. Increased food exports enabled under the North American Free Trade Agreement–also a Clinton-era accomplishment—devastated Latin American farms and have led to a desperate migration north that conservatives decry as “illegal immigration” and that nativists claim deprives “Americans” of jobs. In truth, employers love “illegal immigration” for its seemingly endless supply of easily exploitable workers who can be used as leverage against “legal” workers, forcing all to accept lower pay and poorer working conditions. Workers pay a high price for so-called “free” trade, trade that is “free” only for the wealthy and that is now enshrined in our national ideology.
Clinton addressed his remarks on civil discourse to “lawmakers and other officials.” He wants them not to provoke another domestic terrorist incident such as the Oklahoma City bombing.
So the corporate and political elites are ripping people off blind, but Clinton wants us to continue to believe that they mean well when clearly they couldn’t care less. We’re supposed to remain civil while we are deprived of our livelihoods and our homes and while we stand in lines to sign up for food stamps so we can eat.
Bill, it must be awfully comfortable where you are.