Ramesh S Arunachalam
Hillary Clinton, US democratic presidential nominee aspirant, very recently, REPORTEDLY made a statement blaming 8 years of the BUSH Administration for (much of what happened that led to) the financial crisis in 2008. This is what she REPORTEDLY told the Business Insider...and I quote...
“In her interview with Business Insider, Clinton placed much of the blame for the 2008 financial crisis on the Bush administration's deregulation of the financial industry.” (http://www.businessinsider.in/I-can-never-tell-what-hes-talking-about-Hillary-Clinton-dismisses-Bernie-Sanders-Wall-Street-attacks/articleshow/51652470.cms )
But the facts seem to present a different story...
Look at the Financial Crisis Inquiry Commission (FCIC) report and you will immediately understand why? The (FCIC) report makes several statements regarding de-regulation and the causes of the 2008 financial crisis and I quote the relevant paragraphs from the Final Report[i] of the Financial Crisis Inquiry Commission (FCIC) below:
“By 1997...the Fed also weakened or eliminated other firewalls between traditional banking subsidiaries and the new securities subsidiaries of bank holding companies.[ii]” (FCIC Report)
“During the 1990s the shadow banking system steadily gained ground on the traditional banking sector—and actually surpassed the banking sector for a brief time after 2000. Banks argued that their problems stemmed from the Glass-Steagall Act. Glass-Steagall strictly limited commercial banks’ participation in the securities markets, in part to end the practices of the 1920s, when banks sold highly speculative securities to depositors.” (FCIC Report)
That is not all. The more important paragraphs come hereafter and The Financial Crisis Inquiry Commission (FCIC) report further argues and I quote,
“In the spring of 1996, after years of opposing repeal of Glass-Steagall, the Securities Industry Association—the trade organization of Wall Street firms such as Goldman Sachs and Merrill Lynch—changed course. Because restrictions on banks had been slowly removed during the previous decade, banks already had beachheads in securities and insurance. Despite numerous lawsuits against the Fed and the OCC, securities firms and insurance companies could not stop this piecemeal process of deregulation through agency rulings.[iii] Edward Yingling, the CEO of the American Bankers Association (a lobbying organization), said, ‘Because we had knocked so many holes in the walls separating commercial and investment banking and insurance, we were able to aggressively enter their businesses—in some cases more aggressively than they could enter ours. So first the securities industry, then the insurance companies, and finally the agents came over and said let’s negotiate a deal and work together.’[iv]
“In 1998, Citicorp forced the issue by seeking a merger with the insurance giant Travelers to form Citigroup. The Fed approved it, citing a technical exemption to the Bank Holding Company Act,[v] but Citigroup would have to divest itself of many Travelers assets within five years unless the laws were changed. Congress had to make a decision: Was it prepared to break up the nation’s largest financial firm? Was it time to repeal the Glass-Steagall Act, once and for all?
As Congress began fashioning legislation, the banks were close at hand. In 1999, the financial sector spent $187 million lobbying at the federal level, and individuals and political action committees (PACs) in the sector donated $202 million to federal election campaigns in the 2000 election cycle. FROM 1999 THROUGH 2008, FEDERAL LOBBYING BY THE FINANCIAL SECTOR REACHED $2.7 BILLION; CAMPAIGN DONATIONS FROM INDIVIDUALS AND PACS TOPPED $1 BILLION.[vi]
In November 1999, Congress passed and PRESIDENT CLINTON signed the Gramm-Leach-Bliley Act (GLBA), which lifted most of the remaining Glass-Steagall-era restrictions. The new law embodied many of the measures Treasury had previously advocated.[vii] The New York Times reported that Citigroup CEO Sandy Weill hung in his office “a hunk of wood—at least 4 feet wide—etched with his portrait and the words ‘The Shatterer of Glass-Steagall.’”[viii] (FCIC Report)
Note the fact that the FCIC, which was the statutory commission inquiring into the 2008 financial crisis strongly highlighted the FACT that PACS and Lobbying indeed played a HUGE role in the shattering of Glass-Steagall-era restrictions, which - as all of you can see - happened in November 1999, when Bill Clinton was the President.
And we all know what happened in the end as per the FCIC report and as John Reed, former co-CEO of Citigroup, acknowledged to the FCIC, in hindsight,
“the compartmentalization that was created by Glass-Steagall would be a positive factor,” making less likely a “catastrophic failure” of the financial system.[ix] (FCIC Report)
In fact, in my humble opinion, the de-regulation that happened during mid-end 1990s (including the “The Shattering of Glass-Steagall”) was a very important reason for the 2008 financial crisis. In fairness, as the FCIC report argues very correctly, de-regulation started much before the 1990s but it sort of ‘peaked’ during the mid-end 1990s, when the Glass-Steagall was indeed shattered.
Read on to get a factual account of what happened and again I quote from the FCIC report:
“We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation[x] and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor. ...
Changes in the regulatory system occurred in many instances as financial markets evolved. But as the report will show, the financial industry itself played a key role in weakening regulatory constraints on institutions, markets, and products. It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators. From 1999 to 2008 the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions. What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability.” (FCIC Report)
Therefore, from the above facts given in the FCIC report, it can be clearly seen that Hillary Clinton reportedly made a “factually incorrect” statement to the business insider (as noted above and) as given in this link - http://www.businessinsider.in/I-can-never-tell-what-hes-talking-about-Hillary-Clinton-dismisses-Bernie-Sanders-Wall-Street-attacks/articleshow/51652470.cms
This article has been written to set the record straight and present the correct facts!
[ii] Thereafter, banks were only required to lend on collateral and set terms based upon what the market was offering. They also could not lend more than 10% of their capital to one subsidiary or more than 20% to all subsidiaries. Order Approving Applications to Engage in Limited Underwriting and Dealing in Certain Securities,” Federal Reserve Bulletin 73, no. 6 (June 1987): 473–508; “Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities,” Federal Register 61, no. 251 (Dec. 30, 1996), 68750–56.
[iii] Securities Industry Association v. Board of Governors of the Federal Reserve System, 627 F.Supp. 695 (D.D.C. 1986); Kathleen Day, “Reinventing the Bank; With Depression-Era Law about to Be Rewritten, the Future Remains Unclear,” Washington Post, October 31, 1999.
[iv] Edward Yingling, quoted in “The Making of a Law,” ABA Banking Journal, December 1999.
[v] Senate Lobbying Disclosure Act Database (www.senate.gov/legislative/Public_Disclosure/LDA_reports.htm); figures on employees and PACs compiled by the Center for Responsive Politics from Federal Elections Commission data.
[vi] FCIC staff computations based on data from the Center for Responsive Politics. “Financial sector” here includes insurance companies, commercial banks, securities and investment firms, finance and credit companies, accountants, savings and loan institutions, credit unions, and mortgage bankers and brokers.
[vii] U.S. Department of the Treasury, Modernizing the Financial System (February 1991); Fed Chairman Alan Greenspan, “H.R. 10, the Financial Services Competitiveness Act of 1997,” testimony before the House Committee on Banking and Financial Services, 105th Cong., 1st sess., May 22, 1997.
[viii] Katrina Brooker, “Citi’s Creator, Alone with His Regrets,” New York Times, January 2, 2010 - http://www.nytimes.com/2010/01/03/business/economy/03weill.html?_r=0
[ix] John Reed, interview by FCIC, March 24, 2010.
[x] The FCIC final report came out in 2011 and thirty years refers to the period 1981-2011 I guess