Published September 10, 2012
That’s the only word to use when describing Democrats’ attempts to lay blame for the financial crisis solely on the doorstep of Republicans. In fact, Democrats are right up there with Republicans in bearing responsibility for the crisis from which we’re still trying to recover. And two of the primary culprits were sounding off at the Democratic Convention in Charlotte, hurling manure that should have been aimed in the other direction.
First among them was New York Governor Andrew Cuomo, who gave a hell-raising speech outside the Democratic convention hall on Thursday.
“Frankly,” the governor began (and I must add that whenever a politician begins with the word “Frankly,” you know you’re about to get a bag full) “it is absurd that the people, the party that created the problem now want to present themselves as the solver of the problem to the American people.”
“The problem” which Gov. Cuomo was blaming Republicans for creating was the financial crisis. But it was Andrew Cuomo who did as much as anybody to “create” the problem we’re now in. When he was head of Housing and Urban Development (HUD) in the Clinton Administration, Cuomo encouraged billions of dollars in irresponsible sub-prime loans, which became fuel for the financial fires that followed. Liberal journalist Wayne Barrett wrote an extensive series in 2008 for the “Village Voice” on Cuomo’s role, which Barrett claims actually “gave birth” to the financial crisis.
For Cuomo to say that Republicans created the sub-prime mess is like Bernie Madoff blaming the SEC for causing his Ponzi scheme.
While it’s hard to compete with Cuomo’s gall in casting blame for something that he was a part of, our rascally, impeached former president Bill Clinton comes pretty close. In political ads, and in his speech at the convention on Wednesday night, Clinton blames Republicans for deregulations that led to the financial crisis.
In point of fact, it was Bill Clinton who presided over the death of the Glass Steagall Act — the most significant piece of banking deregulation enacted in our lifetime. And killing off Glass Steagall did more than anything else to enable Wall Street to make the bets that froze our financial system in 2008.
Born out of the bank failures during the Great Depression, the Glass Steagall Act of 1933 sought to erect barriers between the wild financial instruments of Wall Street and the relatively safe assets of commercial banks. It was this cross-breeding of safe mortgages and deposits with fancy financial instruments and derivatives that led to the bank runs in the early days of the Depression. And as we’ve seen, it was the mixing of risky financial instruments with solid, commercial assets that got us into trouble this time around. So Glass Steagall was meant to keep our country’s safe assets safe.
But in the 1980s and 1990s, as domestic banks were feeling strong competitive pressure from foreign banks, they began to lobby heavily to kill Glass Steagall. Former Fed Chairman Paul Volcker fought the moves to end Glass Steagall. He lectured that it was a very dangerous thing to allow financial banks to leverage huge bets on the backs of solid, government-insured, commercial banking assets. But Bill Clinton, his Treasury Secretary Robert Rubin and, it must be said, many Republicans, thought that Volcker was an old fuddy-duddy, and they chose to ignore his sage advice.
After years of fighting for financial deregulation, Treasury Secretary Rubin won the day, and on November 12, 1999, President Clinton signed his name to the bill that officially ended Glass Steagall. (It should also be mentioned that almost immediately after leaving office, Mr. Rubin landed a top job at Citigroup, which had lobbied hard for an end to Glass Steagall.)
And just as Volcker had warned, with Glass Steagall gone, financial firms began to gin up all kinds of financial instruments that were tied in with the solid banking assets of America’s middle class. That was bad enough. But when the commercial and financial banks got together to securitize the “assets” of poorly manufactured subprime loans (thank you, Mr. Cuomo), one of the world’s most secure banking systems began to teeter on the edge of insolvency.
The supposedly secure assets of America’s middle class were lumped together with wildly leveraged bets secured with junk. And it couldn’t have been done without the signature of Bill Clinton — perhaps the biggest bank deregulator of all time.
We expect hypocrisy in an election year. But the complete re-writing of history by politicians looking to exonerate their own guilt and foist it on others is inexcusable. Such blatant hypocrisy is supposed to be kept in check by an alert media. But the media -- for all of their vaunted “fact checking” -- have done virtually nothing to fact check some of the most important economic charges leveled by individuals with virtually no credibility to do so.