POLITICAL observations & opinions

* Bill Clinton has responsibility for setting the stage for our recent financial disaster (lower capital gains tax and repeal of Glass-Steagall) … He needs to admit he was wrong and apologize to the American people … If he does not, Clinton’s value as a campaigner for Obama will be severely compromised

Posted by Lew Weinstein on January 20, 2012

******

******

 Paul Krugman writes …

  • Back in 1986, Ronald Reagan — yes, Ronald Reagan — signed a tax reform equalizing top rates on earned income and capital gains at 28 percent. The rate rose further, to more than 29 percent, during Bill Clinton’s first term.
  • Low capital gains taxes date only from 1997, when Mr. Clinton struck a deal with Republicans in Congress in which he cut taxes on the rich in return for creation of the Children’s Health Insurance Program.

http://www.nytimes.com/2012/01/20/opinion/krugman-taxes-at-the-top.html?_r=1&partner=rss&emc=rss

*****

President Clinton has more to apologize for …

  • The repeal of provisions of the Glass–Steagall Act by the Gramm–Leach–Bliley Act in 1999 effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits.
  • The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks.

This repeal directly contributed to the severity

of the financial crisis of 2007-2011 

by allowing Wall Street investment banking firms to gamble

with their depositors’ money that was held in the commercial banks.

http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

******

  • When Clinton repealed the Glass-Steagall Act, which then allowed investment banks to merge with commercial banks, the final piece of the puzzle was in place as normally conservative investing banks could then invest heavily in over the counter derivatives markets, much of which was in the form of speculative credit derivatives closely tied to real estate.
  • Much of that real estate had been financed with sub-prime financing with borrowers who could barely buy a doughnut, let alone a house.

http://www.chattanoogan.com/articles/article_169166.asp

 ******

 LMW COMMENT …

Bill Clinton has responsibility for setting the stage for our recent financial disaster.  He needs to admit he was wrong and apologize to the American people. If he does not, Clinton’s value as a campaigner for Obama will be severely compromised.

******

Advertisements

4 Responses to “* Bill Clinton has responsibility for setting the stage for our recent financial disaster (lower capital gains tax and repeal of Glass-Steagall) … He needs to admit he was wrong and apologize to the American people … If he does not, Clinton’s value as a campaigner for Obama will be severely compromised”

  1. Jonathan said

    I think this analysis oversimplifies the argument. I do not believe it was the repeal of Glass-Steagall that caused the problem, but the poor regulation and oversight of the banks. These are related issues, but not the same.

    There were, obviously, several good arguments for allowing investment banks and commercial banks to engage in each other’s lines of business. Two very basic ones are: (1) It allowed large organizations to diversify their lines of business, which traditionally is a conservative approach that provides additional options when a particular line of business is facing difficulties. (2) It also allowed Americans to benefit from large companies, successful in a particular sphere, competing against those in another, related industry. Companies were confronted by more competition and investors – even pension funds and the mutual funds of the 99% – benefited from lower fees and broader offerings.

    Similar efforts to encourage competition and allow business diversification are seen anytime your Cable/Phone/Internet provider offers to bundle your account to include all three.

    The repeal of Glass-Steagall did not remove all constraints and limitations on the use of commercial bank deposit funds for the banks’ own investments. The system, if monitored, regulated and enforced properly, did not necessarily need to lead to the dire outcomes we have seen.

    I am not sure where the blame lies for the poor regulation and enforcement, or whether President Clinton and his administration share in it. But the repeal of Glass-Steagall, despite the events of the past decade, was not in itself the problem or even the cause of the problem.

    • Lew Weinstein said

      The law separating investment banking (speculative, high risk) from commercial banking was a good one, and had it remained in place … would we have had mortgage derivatives? … would the mortgage crisis have happened?

      There is a reason to fear excess risk-taking by financial institutions which are supposed to be stable and reliable. If they want to diversify, let them form separate ventures where people know they are taking risks, and where they will pay the price of failure, and where they will not mix in funds from people who had no interest in risky ventures. By combining risk-taking with commercial banking we got the pernicious “too big to fail” syndrome.

      • Chris said

        Excess risk is not in itself bad it can create great opportunity and wealth. However when you are gambling other people’s money and it is backed by guarantees from the government against losses it’s not really that much of a risk.

  2. Linda Bernstein said

    Lew,
    While I agree with you on this point, I think the emphasis needs to be placed on asking why our lawmakers haven’t re-enacted Glass-Steagall. Pretty obvious that they would lose their precious funding and pocket money. Such a simple fix is a non-starter in Washington. President Obama has disappointed me greatly on issues like this. The republicans would certainly not make things better.
    President Clinton should be held responsible for his complicit actions but he has lots and lots of company.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: