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Clinton's Real Policy for an Unreal World

The Sunday NYT Magazine had an extended interview with Bill Clinton that shed some light on his views on deregulation:

In almost clinical form, as if back at Oxford as a Rhodes scholar, he broke down the case against him into three allegations: first, that he used the Community Reinvestment Act to force small banks into making loans to low-income depositors who were too risky. Second, that he signed the deregulatory Gramm-Leach-Bliley Act in 1999, repealing part of the Depression-era Glass-Steagall Act that prohibited commercial banks from engaging in the investment business. And third, that he failed to regulate the complex financial instruments known as derivatives.

The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems. The second he gives some credence to, although he blames Bush for, in his view, neutering the Securities and Exchange Commission. “Letting banks take investment positions I don’t think had much to do with this meltdown,” he said. “And the more diversified institutions in general were better able to handle what happened. And again, if I had known that the S.E.C. would have taken a rain check, would I have done it? Probably not. But I wouldn’t have done anything. In other words, I would have tried to reverse everything if I had known we were going to have eight years where we would not have an S.E.C. for most of the time.”

Clinton argued that the Gramm-Leach-Bliley Act set up a framework for overseeing the industry. “So I don’t think that’s such a good criticism,” he said. “I think, actually, if you want to make a criticism on that, it would be an indirect one * you could say that the signing of that legislation sped up what was happening anyway and maybe led some of these institutions to be bigger than they otherwise would have been and the very bigness of some of these groups caused some of this problem because the bigger something is and the newer it is, the harder it is to manage. And I do think there were some serious management problems which might not have occurred.”

Then there are the derivatives. There, Clinton pleads guilty. Alan Greenspan, the Federal Reserve chairman, opposed regulation of derivatives as they came to the fore in the 1990s, and Clinton agreed. “They argued that nobody’s going to buy these derivatives, we’ll do it without transparency, they’ll get the information they need,” he recalled. “And it turned out to be just wrong; it just wasn’t true.” He said others share blame, including credit-rating agencies that underestimated the risk. But he accepts responsibility as well. “I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission and that transparency rules had been observed and that we had done that. That I think is a legitimate criticism of what we didn’t do.” He added: “If you ask me to write the indictment, I’d say: ‘I wish Bill Clinton had said more about derivatives. The Republicans probably would have stopped him from doing it, but at least he should have sounded the alarm bell.’ ”


Clinton's comments on Gramm-Leach-Bliley and derivatives non-regulation illustrate almost perfectly the flaws in (even smart) neoliberals' logic. First, construct a coherent policy approach that only makes sense if you ignore political economy and political uncertainty (i.e. "de/non regulation would have worked, if only the relevant agencies had done their job like I hoped they would, rather than how industry wants them to function," or "it all would have worked if someone just like me were elected president"). Second, the outcome that someone with even a passing understanding of power and regulatory capture would predict, in fact happens. Third, avoid blame by claiming good intentions.

Are we doomed to repeat this history?

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